e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-12991

BANCORPSOUTH, INC.

(Exact name of registrant as specified in its charter)


Mississippi (State or other jurisdiction of incorporation or organization)		64-0659571 (I.R.S. Employer Identification No.)

One Mississippi Plaza, 201 South Spring Street Tupelo, Mississippi (Address of principal executive offices)		38804 (Zip Code)

Registrant’s telephone number, including area code: (662) 680-2000

NOT APPLICABLE
(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of May 3, 2010, the registrant had outstanding 83,476,520 shares of common stock, par value $2.50 per share.

BANCORPSOUTH, INC.
TABLE OF CONTENTS


			Page
PART I. Financial Information
ITEM 1. Financial Statements
Consolidated Balance Sheets March 31, 2010 (Unaudited) and December 31, 2009			3
Consolidated Statements of Income (Unaudited) Three Months March 31, 2010 and 2009			4
Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2010 and 2009			5
Notes to Consolidated Financial Statements (Unaudited)			6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			43
ITEM 4. Controls and Procedures			43

PART II. Other Information
ITEM 1A. Risk Factors			44
ITEM 6. Exhibits			44
EX-31.1
EX-31.2
EX-32.1
EX-32.2

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Report may not be based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by reference to a future period(s) or by the use of forward-looking terminology, such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “may,” “might,” “will,” “intend,” “indicated,” “could,” or “would,” or future or conditional verb tenses, and variations or negatives of such terms. These forward-looking statements include, without limitation, those relating to net interest revenue, estimates of fair value discount rates, fair values of held-to-maturity and available-for-sale securities, the amount of the Company’s non-performing loans and leases, credit quality, credit losses, off-balance sheet commitments and arrangements, valuation of mortgage servicing rights, allowance and provision for credit losses, continued weakness in the economic environment, early identification and resolution of credit issues, utilization of non-GAAP financial measures, real estate values, fully-indexed interest rates, interest rate risk, average interest rate earned, interest rate sensitivity, calculation of economic value of equity, diversification of the Company’s revenue stream, liquidity needs and strategies, the Company’s net interest margin, payment of dividends, the impact of federal and state regulatory requirements for capital on the Company’s ability to meet its cash obligations, future acquisitions to further the Company’s business strategies and the consideration for any such transactions, additional share repurchases under the Company’s stock repurchase program, the impact of pending litigation and the implementation and effect of remedial actions to address the material weakness in internal control over financial reporting. We caution you not to place undue reliance on the forward-looking statements contained in this report, in that actual results could differ materially from those indicated in such forward-looking statements as a result of a variety of factors. These factors include, but are not limited to, conditions in the financial markets and economic conditions generally, the soundness of other financial institutions, levels of market volatility, the availability of capital if the Company elects or is compelled to seek additional capital, liquidity risk, the credit risk associated with real estate construction, estimates of costs and values associated with acquisition and development loans in the Company’s loan portfolio, the adequacy of the Company’s allowance for credit losses to cover actual credit losses, governmental regulation and supervision of the Company’s operations, changes in interest rates, the impact of monetary policies and economic factors on the Company’s ability to attract deposits or make loans, the impact of hurricanes or other adverse weather events, risks in connection with completed or potential acquisitions, dilution caused by the Company’s issuance of any additional shares of its common stock to acquire other banks, bank holding companies, financial holding companies and insurance agencies, restrictions on the Company’s ability to declare and pay dividends, the Company’s growth strategy, diversification in the types of financial services the Company offers, competition with other financial services companies, interruptions or breaches in security of the Company’s information systems, the Company’s ability to improve its internal controls adequately, any requirement that the Company write down goodwill or other intangible assets and other factors detailed from time to time in the Company’s press releases and filings with the Securities and Exchange Commission. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date of this report.

PART I.

FINANCIAL INFORMATION


ITEM 1.		FINANCIAL STATEMENTS.

BANCORPSOUTH, INC. AND SUBSIDIARIES

Consolidated Balance Sheets


	March 31,			December 31,			March 31,
	2010			2009			2009
	(Unaudited)			(1)			(Unaudited)
	(Dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks	$	187,115		$	222,741		$	242,180
Interest bearing deposits with other banks		9,943			15,704			34,230
Held-to-maturity securities, at amortized cost		1,219,983			1,032,822			1,330,810
Available-for-sale securities, at fair value		891,221			960,772			993,529
Federal funds sold and securities purchased under agreement to resell		120,000			75,000			—
Loans and leases		9,756,081			9,822,986			9,759,787
Less: Unearned income		45,259			47,850			46,964
Allowance for credit losses		188,884			176,043			134,632

Net loans		9,521,938			9,599,093			9,578,191
Loans held for sale		80,312			80,343			168,769
Premises and equipment, net		339,860			343,877			348,734
Accrued interest receivable		69,022			68,651			77,503
Goodwill		270,097			270,097			269,062
Bank owned life insurance		189,022			187,770			184,026
Other assets		331,677			310,997			231,330

TOTAL ASSETS	$	13,230,190		$	13,167,867		$	13,458,364


LIABILITIES
Deposits:
Demand: Noninterest bearing	$	1,860,579		$	1,901,663		$	1,820,807
Interest bearing		4,589,029			4,323,646			4,005,620
Savings		768,302			725,192			719,676
Other time		3,776,251			3,727,201			3,545,871

Total deposits		10,994,161			10,677,702			10,091,974
Federal funds purchased and securities sold under agreement to repurchase		480,795			539,870			1,256,649
Short-term Federal Home Loan Bank and other short-term borrowings		2,500			203,500			210,000
Accrued interest payable		17,972			19,588			22,841
Junior subordinated debt securities		160,312			160,312			160,312
Long-term Federal Home Loan Bank borrowings		112,760			112,771			286,302
Other liabilities		196,806			177,828			174,627

TOTAL LIABILITIES		11,965,306			11,891,571			12,202,705


SHAREHOLDERS’ EQUITY
Common stock, $2.50 par value per share Authorized — 500,000,000 shares; Issued — 83,462,120 83,450,296 and 83,124,534 shares, respectively		208,655			208,626			207,811
Capital surplus		223,307			222,547			216,138
Accumulated other comprehensive loss		(10,645	)		(8,409	)		(23,620	)
Retained earnings		843,567			853,532			855,330

TOTAL SHAREHOLDERS’ EQUITY		1,264,884			1,276,296			1,255,659

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	13,230,190		$	13,167,867		$	13,458,364


(1)		Derived from audited financial statements.

See accompanying notes to consolidated financial statements.

BANCORPSOUTH, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)


	Three months ended
	March 31,
	2010		2009
	(In thousands, except for per share amounts)
INTEREST REVENUE:
Loans and leases	$	126,956	$	129,209
Deposits with other banks		21		70
Federal funds sold and securities purchased under agreement to resell		82		1
Held-to-maturity securities:
Taxable		9,415		13,031
Tax-exempt		2,461		2,111
Available-for-sale securities:
Taxable		8,385		9,038
Tax-exempt		832		883
Loans held for sale		506		1,275

Total interest revenue		148,658		155,618


INTEREST EXPENSE:
Deposits:
Interest bearing demand		9,392		12,248
Savings		889		936
Other time		21,529		25,833
Federal funds purchased and securities sold under agreement to repurchase		228		572
Federal Home Loan Bank borrowings		1,880		2,823
Junior subordinated debt		2,855		2,955
Other		3		375

Total interest expense		36,776		45,742

Net interest revenue		111,882		109,876
Provision for credit losses		43,519		14,945

Net interest revenue, after provision for credit losses		68,363		94,931


NONINTEREST REVENUE:
Mortgage lending		5,025		7,652
Credit card, debit card and merchant fees		8,810		8,348
Service charges		16,262		16,755
Trust income		2,587		2,209
Security gains, net		1,297		5
Insurance commissions		21,668		22,645
Other		7,683		10,204

Total noninterest revenue		63,332		67,818


NONINTEREST EXPENSE:
Salaries and employee benefits		69,287		71,363
Occupancy, net of rental income		10,775		9,999
Equipment		5,739		6,222
Deposit insurance assessments		4,250		3,126
Other		30,432		29,268

Total noninterest expense		120,483		119,978

Income before income taxes		11,212		42,771
Income tax expense		2,816		13,294

Net income	$	8,396	$	29,477


Earnings per share: Basic	$	0.10	$	0.35

Diluted	$	0.10	$	0.35


Dividends declared per common share	$	0.22	$	0.22

See accompanying notes to consolidated financial statements.

BANCORPSOUTH, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)


	Three months ended
	March 31,
	2010			2009
	(In thousands)
Operating Activities:
Net income	$	8,396		$	29,477
Adjustment to reconcile net income to net cash provided by operating activities:
Provision for credit losses		43,519			14,945
Depreciation and amortization		7,547			7,688
Deferred taxes		(6,328	)		9,826
Amortization of intangibles		1,015			1,360
Amortization of debt securities premium and discount, net		1,268			1,228
Share-based compensation expense		567			591
Security gains, net		(1,297	)		(5	)
Net deferred loan origination expense		(2,371	)		(2,286	)
Excess tax benefit from exercise of stock options		(21	)		(23	)
(Increase) decrease in interest receivable		(371	)		1,680
Increase (decrease) in interest payable		(1,616	)		2,086
Realized gain on student loans sold		—			(1,692	)
Proceeds from student loans sold		—			62,080
Origination of student loans held for sale		—			(31,873	)
Realized gain on mortgages sold		(2,041	)		(5,992	)
Proceeds from mortgages sold		208,825			426,154
Origination of mortgages held for sale		(207,400	)		(424,306	)
Increase in bank-owned life insurance		(1,252	)		(1,754	)
Decrease in prepaid pension asset		395			561
Decrease in prepaid deposit insurance assessments		3,830			—
Other, net		2,072			(10,280	)

Net cash provided by operating activities		54,737			79,465

Investing activities:
Proceeds from calls and maturities of held-to-maturity securities		106,558			9,637
Proceeds from calls and maturities of available-for-sale securities		142,641			41,210
Purchases of held-to-maturity securities		(293,816	)		(7,154	)
Purchases of available-for-sale securities		(77,220	)		(48,709	)
Net (increase) decrease in loans and leases		36,004			(33,399	)
Purchases of premises and equipment		(3,567	)		(5,608	)
Proceeds from sale of premises and equipment		42			622
Acquisition of businesses, net of cash acquired		—			(96	)
Other, net		—			(64	)

Net cash provided by (used in) investing activities		(89,358	)		(43,561	)

Financing activities:
Net increase in deposits		316,459			380,102
Net (decrease) increase in short-term debt and other liabilities		(305,075	)		(426,237	)
Repayment of long-term debt		(11	)		(10	)
Issuance of common stock		201			316
Excess tax benefit from exercise of stock options		21			23
Payment of cash dividends		(18,361	)		(18,285	)

Net cash used in financing activities		(6,766	)		(64,091	)


Decrease in cash and cash equivalents		(41,387	)		(28,187	)
Cash and cash equivalents at beginning of period		238,445			304,597

Cash and cash equivalents at end of period	$	197,058		$	276,410

See accompanying notes to consolidated financial statements.

BANCORPSOUTH, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 – BASIS OF FINANCIAL STATEMENT PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The accompanying unaudited interim consolidated financial statements of BancorpSouth, Inc. (the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and follow general practices within the industries in which the Company operates. For further information, refer to the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements have been included and all such adjustments were of a normal, recurring nature. The results of operations for the three-month period ended March 31, 2010 are not necessarily indicative of the results to be expected for the full year. Certain 2009 amounts have been reclassified to conform with the 2010 presentation.

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, BancorpSouth Bank (the “Bank”) and Risk Advantage, Inc. and the Bank’s wholly-owned subsidiaries, Century Credit Life Insurance Company, Personal Finance Corporation of Tennessee, BancorpSouth Insurance Services, Inc., BancorpSouth Investment Services, Inc. and BancorpSouth Municipal Development Corporation.

NOTE 2 – LOANS AND LEASES

The composition of the loan and lease portfolio by collateral type as of the dates indicated was as follows:


	March 31,				December 31,
	2010		2009		2009
	(In thousands)
Commercial and industrial	$	1,515,404	$	1,437,006	$	1,514,419
Real estate
Consumer mortgages		2,014,085		2,037,439		2,017,067
Home equity		549,924		519,528		550,085
Agricultural		266,649		238,466		262,069
Commercial and industrial-owner occupied		1,423,098		1,455,422		1,449,554
Construction, acquisition and development		1,428,882		1,692,526		1,459,503
Commercial		1,809,660		1,660,211		1,806,766
Credit cards		101,464		98,450		108,086
All other		646,915		620,739		655,437

Total	$	9,756,081	$	9,759,787	$	9,822,986

The Company does not have any loan concentrations, other than those reflected in the preceding table, which exceed 10% of total loans. At March 31, 2010, approximately 44% of the Company’s geographic loan distribution was concentrated in its Mississippi market.

A substantial portion of construction, acquisition and development loans are secured by real estate in markets in which the Company is located. These loans are often structured with interest reserves to fund interest costs during the construction and development period. Additionally, certain loans are structured with interest-only terms. A portion of the consumer mortgage and commercial real estate portfolios originated through the permanent financing of construction, acquisition and development loans. Accordingly, the ultimate collectability of a substantial portion of these loans and the recovery of a substantial portion of the carrying amount of other real estate owned are susceptible to changes in market conditions in these areas.

Non-performing loans and leases (“NPL”s) consist of non-accrual loans and leases, loans and leases 90 days or more past due, still accruing, and loans and leases that have been restructured because of the borrower’s weakened financial condition. The following table presents information concerning NPLs as of the dates indicated:


	March 31,				December 31,
	2010		2009		2009
	(In thousands)
Non-accrual loans and leases	$	199,637	$	38,936	$	144,013
Loans and leases 90 days or more past due, still accruing		20,452		27,299		36,301
Restructured loans and leases still accruing		15,576		7,581		6,161

Total non-performing loans	$	235,665	$	73,816	$	186,475

The Bank’s policy provides that loans and leases are generally placed in non-accrual status if, in management’s opinion, payment in full of principal or interest is not expected or payment of principal or interest is more than 90 days past due, unless the loan or lease is both well-secured and in the process of collection. At March 31, 2010, the Company’s geographic NPL distribution was concentrated primarily in its Alabama and Tennessee markets, including the greater Memphis, Tennessee area, a portion of which is in Northwest Mississippi.

Loans considered impaired under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310, Receivables (“FASB ASC 310”) are loans for which, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement and include troubled debt restructurings (“TDRs”). The Company’s recorded investment in loans considered impaired at March 31, 2010 and December 31, 2009 was $171.3 million and $128.5 million, respectively, with recorded valuation allowances of $30.8 million and $22.7 million, respectively. Impaired loans that were characterized as TDRs totaled $90.4 million and $72.6 million at March 31, 2010 and December 31, 2009, respectively.

At both March 31, 2010 and December 31, 2009, other real estate owned which had been acquired, usually through foreclosure, from borrowers totaled $59.3 million. Substantially all of these amounts related to one-to-four family residential properties and development projects that were either completed or were in various stages of construction. The Company incurred total foreclosed property expenses of $3.5 million and $2.3 million at March 31, 2010 and 2009, respectively. Realized net losses on dispositions and holding losses on valuations of these properties, a component of total foreclosed property expenses, were $2.7 million and $1.5 million at March 31, 2010 and 2009, respectively.

NOTE 3 – ALLOWANCE FOR CREDIT LOSSES

The following table summarizes the changes in the allowance for credit losses for the periods indicated:


	Three months ended						Year ended
	March 31,						December 31,
	2010			2009			2009
	(In thousands)
Balance at beginning of period	$	176,043		$	132,793		$	132,793
Provision charged to expense		43,519			14,945			117,324
Recoveries		701			1,045			4,139
Loans and leases charged off		(31,379	)		(14,151	)		(78,213	)

Balance at end of period	$	188,884		$	134,632		$	176,043

NOTE 4 – SECURITIES

A comparison of amortized cost and estimated fair values of held-to-maturity securities as of March 31, 2010 and December 31, 2009 follows:


	March 31, 2010
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
			(In thousands)
U.S. Government agencies	$	983,178	$	33,105	$	572	$	1,015,711
Obligations of states and political subdivisions		236,805		6,363		730		242,439

Total	$	1,219,983	$	39,468	$	1,302	$	1,258,150


	December 31, 2009
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
			(In thousands)
U.S. Government agencies	$	798,660	$	39,685	$	—	$	838,345
Obligations of states and political subdivisions		234,162		6,238		670		239,730

Total	$	1,032,822	$	45,923	$	670	$	1,078,075

Gross gains of approximately $15,000 and no gross losses were recognized on held-to-maturity securities during the first three months of 2010, while gross gains of approximately $3,000 and gross losses of approximately $2,000 were recognized during the first three months of 2009. These gains and losses were a result of held-to-maturity securities being called prior to maturity.

The amortized cost and estimated fair value of held-to-maturity securities at March 31, 2010 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	March 31, 2010
			Estimated
	Amortized		Fair
	Cost		Value
	(In thousands)
Maturing in one year or less	$	433,090	$	441,039
Maturing after one year through five years		449,111		471,811
Maturing after five years through ten years		143,214		145,013
Maturing after ten years		194,568		200,287

Total	$	1,219,983	$	1,258,150

A comparison of amortized cost and estimated fair values of available-for-sale securities as of March 31, 2010 and December 31, 2009 follows:


	March 31, 2010
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
			(In thousands)
U.S. Government agencies	$	473,284	$	16,567	$	—	$	489,851
Government agency issued residential mortgage-backed securities		243,353		7,348		463		250,238
Government agency issued commercial mortgage-backed securities		20,544		661		92		21,113
Obligations of states and political subdivisions		111,152		1,666		405		112,413
Collateralized debt obligations		1,449		—		—		1,449
Other		15,600		558		—		16,157

Total	$	865,382	$	26,800	$	960	$	891,221


	December 31, 2009
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
			(In thousands)
U.S. Government agencies	$	493,970	$	18,325	$	207	$	512,088
Government agency issued residential mortgage-backed securities		282,634		9,906		122		292,418
Government agency issued commercial mortgage-backed securities		18,229		693		85		18,837
Obligations of states and political subdivisions		109,751		1,589		502		110,838
Collateralized debt obligations		2,125		—		—		2,125
Other		23,967		500		1		24,466

Total	$	930,676	$	31,013	$	917	$	960,772

Gross gains of $1.96 million and gross losses of approximately $676,000 were recognized on available-for-sale securities during the first three months of 2010, while gross gains of approximately $4,000 and no gross losses were recognized during the first three months of 2009.

The amortized cost and estimated fair value of available-for-sale securities at March 31, 2010 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Equity securities are considered as maturing after ten years.


	March 31, 2010
			Estimated
	Amortized		Fair
	Cost		Value
	(In thousands)
Maturing in one year or less	$	68,468	$	69,692
Maturing after one year through five years		459,805		477,408
Maturing after five years through ten years		131,749		133,838
Maturing after ten years		205,360		210,283

Total	$	865,382	$	891,221

The following table summarizes information pertaining to temporarily impaired held-to-maturity and available-for-sale securities with continuous unrealized loss positions at March 31, 2010:


	Continuous Unrealized Loss Position
	Less Than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
						(In thousands)
Held-to-maturity securities:
U.S. Government agencies	$	223,093	$	(572	)	$	—	$	—		$	223,093	$	(572	)
Obligations of states and political subdivisions		21,139		(335	)		9,001		(395	)		30,140		(730	)

Total	$	244,232	$	(907	)	$	9,001	$	(395	)	$	253,233	$	(1,302	)


Available-for-sale securities:
U.S. Government agencies	$	—	$	—		$	—	$	—		$	—	$	—
Government agency issued residential mortgage-backed securities		61,160		(384	)	$	2,661		(79	)		63,821		(463	)
Government agency issued commercial mortgage-backed securities		3,071		(26	)		2,282		(66	)		5,353		(92	)
Obligations of states and political subdivisions		34,995		(205	)		2,409		(200	)		37,404		(405	)
Other				—			—		—			—		—

Total	$	99,226	$	(615	)	$	7,352	$	(345	)	$	106,578	$	(960	)

Based upon a review of the credit quality of these securities, and considering that the issuers were in compliance with the terms of the securities, the Company had no intent to sell these securities, and it was more likely than not that the Company would not be required to sell the securities prior to recovery of costs. Therefore, the impairments related to these securities were determined to be temporary. In the quarter ended March 31, 2010, approximately $676,000 was recorded as other-than-temporary impairment related to investments in pooled trust preferred securities.

NOTE 5 – PER SHARE DATA

The computation of basic earnings per share (“EPS”) is based on the weighted average number of shares of common stock outstanding. The computation of diluted earnings per share is based on the weighted average number of shares of common stock outstanding plus the shares resulting from the assumed exercise of all outstanding share-based awards using the treasury stock method.

The following table provides a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the periods shown:


	Three months ended March 31,
	2010						2009
	Income		Shares		Per Share		Income		Shares		Per Share
	(Numerator)		(Denominator)		Amount		(Numerator)		(Denominator)		Amount
	(In thousands, except per share amounts)
Basic EPS
Income available to common shareholders	$	8,396		83,404	$	0.10	$	29,477		83,107	$	0.35

Effect of dilutive share- based awards		—		171				—		127


Diluted EPS
Income available to common shareholders plus assumed exercise of all outstanding share-based awards	$	8,396		83,575	$	0.10	$	29,477		83,234	$	0.35

NOTE 6 – COMPREHENSIVE INCOME

The following table presents the components of other comprehensive income and the related tax effects allocated to each component for the periods indicated:


	Three months ended March 31,
	2010									2009
	Before			Tax			Net			Before			Tax			Net
	tax			(expense)			of tax			tax			(expense)			of tax
	amount			benefit			amount			amount			benefit			amount
							(In thousands)
Net unrealized gains on available-for- sale securities:
Unrealized (losses) gains arising during holding period	$	(4,255	)	$	1,627		$	(2,628	)	$	4,108		$	(1,576	)	$	2,532
Less: Reclassification adjustment for net gains realized in net income		—			—			—			(5	)		2			(3	)
Recognized employee benefit plan net periodic benefit cost		634			(242	)		392			1,210			(463	)		747

Other comprehensive income	$	(3,621	)	$	1,385		$	(2,236	)	$	5,313		$	(2,037	)	$	3,276

Net income								8,396									29,477

Comprehensive income							$	6,160								$	32,753

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill by operating segment for the three months ended March 31, 2010 were as follows:


	Community		Insurance
	Banking		Agencies		Total
	(In thousands)
Balance as of December 31, 2009	$	217,618	$	52,479	$	270,097
Goodwill recorded during the period		—		—		—

Balance as of March 31, 2010	$	217,618	$	52,479	$	270,097

The following tables present information regarding the components of the Company’s identifiable intangible assets for the dates and periods indicated:


	As of				As of
	March 31, 2010				December 31, 2009
	Gross Carrying		Accumulated		Gross Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
	(In thousands)
Amortized intangible assets:
Core deposit intangibles	$	27,801	$	18,747	$	27,801	$	18,408
Customer relationship intangibles		32,511		19,736		32,511		19,060
Non-solicitation intangibles		600		600		600		600

Total	$	60,912	$	39,083	$	60,912	$	38,068


Unamortized intangible assets:
Trade names	$	688	$	—	$	688	$	—


	Three months ended
	March 31,
	2010		2009
	(In thousands)
Aggregate amortization expense for:
Core deposit intangibles	$	339	$	517
Customer relationship intangibles		676		783
Non-solicitation intangibles		—		60

Total	$	1,015	$	1,360

The following table presents information regarding estimated amortization expense on the Company’s amortizable identifiable intangible assets for the year ended December 31, 2010 and the succeeding four years:


			Customer
	Core Deposit		Relationship
	Intangibles		Intangibles		Total
	(In thousands)
Estimated Amortization Expense:
For year ended December 31, 2010	$	1,308	$	2,601	$	3,909
For year ended December 31, 2011		1,016		2,223		3,239
For year ended December 31, 2012		946		1,905		2,851
For year ended December 31, 2013		582		1,632		2,214
For year ended December 31, 2014		526		1,398		1,924

NOTE 8 – PENSION BENEFITS

The following table presents the components of net periodic benefit costs for the periods indicated:


	Pension Benefits
	Three months ended
	March 31,
	2010			2009
	(In thousands)
Service cost	$	1,803		$	1,817
Interest cost		1,907			1,826
Expected return on assets		(3,487	)		(2,797	)
Amortization of unrecognized transition amount		5			5
Recognized prior service cost		85			75
Recognized net loss		544			1,130

Net periodic benefit costs	$	857		$	2,056

NOTE 9 – RECENT PRONOUNCEMENTS

In June 2009, the FASB issued a new accounting standard regarding accounting for transfers of financial assets. This new accounting standard eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. This new accounting standard is effective for fiscal years beginning after November 15, 2009. The adoption of this new accounting standard regarding accounting for transfers of financial assets has had no material impact on the financial position or results of operations of the Company.

In June 2009, the FASB issued a new accounting standard regarding consolidation of variable interest entities. This new accounting standard amends existing accounting literature regarding consolidation of variable interest entities to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. This new accounting standard is effective for fiscal years beginning after November 15, 2009. The adoption of this new accounting standard regarding consolidation of variable interest entities has had no material impact on the financial position or results of operations of the Company.

NOTE 10 — SEGMENT REPORTING

The Company is a financial holding company with subsidiaries engaged in the business of banking and activities closely related to banking. The Company determines reportable segments based upon the services offered, the significance of those services to the Company’s financial condition and operating results and management’s regular review of the operating results of those services. The Company’s primary segment is Community Banking, which includes providing a full range of deposit products, commercial loans and consumer loans. The Company has also designated two additional reportable segments — Insurance Agencies and General Corporate and Other. The Company’s insurance agencies serve as agents in the sale of title insurance, commercial lines of insurance and full lines of property and casualty, life, health and employee benefits products and services. The General Corporate and Other operating segment includes leasing, mortgage lending, trust services, credit card activities, investment services and other activities not allocated to the Community Banking or Insurance Agencies operating segments.

Results of operations and selected financial information by operating segment for the three-month periods ended March 31, 2010 and 2009 were as follows:


					General
	Community		Insurance		Corporate
	Banking		Agencies		and Other			Total
			(In thousands)
Three months ended March 31, 2010:
Results of Operations
Net interest revenue	$	101,340	$	148	$	10,394		$	111,882
Provision for credit losses		41,948		—		1,571			43,519

Net interest revenue after provision for credit losses		59,392		148		8,823			68,363
Noninterest revenue		26,292		21,735		15,305			63,332
Noninterest expense		77,609		17,403		25,471			120,483

Income (loss) before income taxes		8,075		4,480		(1,343	)		11,212
Income taxes (benefit)		2,028		1,782		(994	)		2,816

Net income (loss)	$	6,047	$	2,698	$	(349	)	$	8,396

Selected Financial Information
Total assets (at end of period)	$	10,774,812	$	181,635	$	2,273,743		$	13,230,190
Depreciation and amortization		6,956		1,060		545			8,561

Three months ended March 31, 2009:
Results of Operations
Net interest revenue	$	101,247	$	189	$	8,440		$	109,876
Provision for credit losses		13,723		—		1,222			14,945

Net interest revenue after provision for credit losses		87,524		189		7,218			94,931
Noninterest revenue		27,456		22,613		17,749			67,818
Noninterest expense		76,371		17,588		26,019			119,978

Income (loss) before income taxes		38,609		5,214		(1,052	)		42,771
Income taxes (benefit)		12,000		2,069		(775	)		13,294

Net income (loss)	$	26,609	$	3,145	$	(277	)	$	29,477

Selected Financial Information
Total assets (at end of period)	$	11,041,535	$	159,888	$	2,256,941		$	13,458,364
Depreciation and amortization		7,298		1,178		572			9,048

NOTE 11 – MORTGAGE SERVICING RIGHTS

Mortgage servicing rights (“MSRs”), which are recognized as a separate asset on the date the corresponding mortgage loan is sold, are recorded at fair value as determined at each accounting period end. An estimate of the fair value of the Company’s MSRs is determined utilizing assumptions about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends and industry demand. Data and assumptions used in the fair value calculation related to MSRs for the three months ended March 31, 2010 were as follows:


(Dollars in thousands)
Unpaid principal balance	$	3,451,958
Weighted-average prepayment speed (CPR)		15.8
Discount rate (annual percentage)		10.3
Weighted-average coupon interest rate (percentage)		5.6
Weighted-average remaining maturity (months)		321.0
Weighted-average servicing fee (basis points)		28.9

Because the valuation is determined by using discounted cash flow models, the primary risk inherent in valuing the MSRs is the impact of fluctuating interest rates on the estimated life of the servicing revenue stream. The use of different estimates or assumptions could also produce different fair values. The Company does not hedge the change in fair value of MSRs and, therefore, the Company is susceptible to significant fluctuations in the fair value of its MSRs in changing interest rate environments.

The Company has only one class of mortgage servicing asset comprised of closed end loans for one-to-four family residences, secured by first liens. The following table presents the activity in this class for the periods indicated:


	2010			2009
	(In thousands)
Fair value as of January 1	$	35,560		$	24,972
Additions:
Origination of servicing assets		2,085			4,212
Changes in fair value:
Due to payoffs/paydowns		(1,302	)		(1,938	)
Due to change in valuation inputs or assumptions used in the valuation model		8			(1,511	)
Other changes in fair value		(1	)		(4	)

Fair value as of March 31	$	36,350		$	25,731

All of the changes to the fair value of the MSRs are recorded as part of mortgage lending noninterest revenue on the income statement. As part of mortgage lending noninterest revenue, the Company recorded contractual servicing fees of $2.7 million and $2.3 million and late and other ancillary fees of approximately $351,000 and $312,000 for the three months ended March 31, 2010 and 2009, respectively.

NOTE 12 – DERIVATIVE INSTRUMENTS

The derivatives held by the Company include commitments to fund fixed-rate mortgage loans to customers and forward commitments to sell individual fixed-rate mortgage loans. The Company’s objective in obtaining the forward commitments is to mitigate the interest rate risk associated with the commitments to fund the fixed-rate mortgage loans. Both the commitments to fund fixed-rate mortgage loans and the forward commitments to sell individual fixed-rate mortgage loans are reported at fair value, with adjustments being recorded in current period earnings, and are not accounted for as hedges. At March 31, 2010, the notional amount of forward commitments to sell individual fixed-rate mortgage loans was $127.6 million with a carrying value and fair value reflecting a gain of $36,000. At March 31, 2009, the notional amount of forward commitments to sell individual fixed-rate mortgage loans was $210.2 million with a carrying value and fair value reflecting a loss of $1.5 million. At March 31, 2010, the notional amount of commitments to fund individual fixed-rate mortgage loans was $86.0 million with a carrying value and fair value reflecting a gain of approximately $825,000. At March 31, 2009, the notional amount of commitments to fund individual fixed-rate mortgage loans was $188.6 million with a carrying value and fair value reflecting a gain of $2.6 million.

The Company also enters into derivative financial instruments in the form of interest rate swaps to meet the financing, interest rate and equity risk management needs of its customers. Upon entering into these interest rate swaps to meet customer needs, the Company enters into offsetting positions to minimize interest rate and equity risk to the Company. These derivative financial instruments are reported at fair value with any resulting gain or loss recorded in current period earnings. These instruments and their offsetting positions are recorded in other assets and other liabilities on the consolidated balance sheets. As of March 31, 2010, the notional amount of customer related derivative financial instruments was $480.6 million with an average maturity of 80 months, an average interest receive rate of 2.6% and an average interest pay rate of 6.1%.

NOTE 13 – FAIR VALUE DISCLOSURES

“Fair value” is defined by FASB ASC 820, Fair Value Measurements and Disclosure (“FASB ASC 820”), as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity’s. Unobservable inputs are inputs that reflect the reporting entity’s assumptions about the assumptions that market participants would use in pricing the asset or

liability developed based on the best information available under the circumstances. The hierarchy is broken down into the following three levels, based on the reliability of inputs:

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs for the asset or liability that reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.

Determination of Fair Value

The Company uses the valuation methodologies listed below to measure different financial instruments at fair value. An indication of the level in the fair value hierarchy in which each instrument is generally classified is included. Where appropriate, the description includes details of the valuation models, the key inputs to those models as well as any significant assumptions.

Available-for-sale securities. Available-for-sale securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. The Company’s available-for-sale securities that are traded on an active exchange, such as the New York Stock Exchange, are classified as Level 1. Available-for-sale securities valued using matrix pricing are classified as Level 2. Available-for-sale securities valued using matrix pricing that has been adjusted to compensate for the present value of expected cash flows, market liquidity, credit quality and volatility are classified as Level 3.

Mortgage servicing rights. The Company records MSRs at fair value on a recurring basis with subsequent remeasurement of MSRs based on change in fair value. An estimate of the fair value of the Company’s MSRs is determined by utilizing assumptions about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends and industry demand. All of the Company’s MSRs are classified as Level 3.

Derivative instruments. The Company’s derivative instruments consist of commitments to fund fixed-rate mortgage loans to customers, forward commitments to sell individual fixed-rate mortgage loans and interest rate swaps. Fair value of these derivative instruments is measured on a recurring basis using either observable market price or a discounted cash flow model using observable market inputs. The Company’s interest rate swaps are classified as Level 2. The Company’s commitments to fund fixed-rate mortgage loans to customers and forward commitments to sell individual fixed-rate mortgage loans are classified as Level 3.

Loans held for sale. Loans held for sale are carried at the lower of cost or estimated fair value and are subject to nonrecurring fair value adjustments. Estimated fair value is determined on the basis of existing commitments or the current market value of similar loans. All of the Company’s loans held for sale are classified as Level 2.

Impaired loans. Loans considered impaired under FASB ASC 310 are loans for which, based on current information and events, it is probable that the creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are subject to nonrecurring fair value adjustments to reflect (1) partial write-downs that are based on the observable market price or current appraised value of the collateral, or (2) the full charge-off of the loan carrying value. All of the Company’s impaired loans are classified as Level 3.

Other real estate owned. Other real estate owned (“OREO”) is carried at the lower of cost or estimated fair value, less estimated selling costs and is subject to nonrecurring fair value adjustments. Estimated fair value is determined

on the basis of independent appraisals and other relevant factors. All of the Company’s OREO is classified as Level 3.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following table presents the balances of the assets and liabilities measured at fair value on a recurring basis as of March 31, 2010 and 2009:


	March 31, 2010
	Level 1		Level 2		Level 3		Total
			(In thousands)
Assets:
Available-for-sale securities:
U.S. Government agencies	$	—	$	489,851	$	—	$	489,851
Government agency issued residential mortgage-backed securities		—		250,237		—		250,237
Government agency issued commercial mortgage-backed securities		—		21,113		—		21,113
Obligations of states and political subdivisions		—		112,413		—		112,413
Collateralized debt obligations		—		—		1,449		1,449
Other		512		15,646		—		16,158
Mortgage servicing rights		—		—		36,350		36,350
Derivative instruments		—		28,263		1,053		29,316

Total	$	512	$	917,523	$	38,852	$	956,887

Liabilities:
Derivative instruments	$	—	$	28,546	$	192	$	28,738


	March 31, 2009
	Level 1		Level 2		Level 3		Total
			(In thousands)
Assets:
Available-for-sale securities:
U.S. Government agencies	$	—	$	514,266	$	—	$	514,266
Government agency issued residential mortgage-backed securities		—		354,589		—		354,589
Government agency issued commercial mortgage-backed securities		—		18,828		—		18,828
Obligations of states and political subdivisions		—		80,159		—		80,159
Collateralized debt obligations		—		—		2,375		2,375
Other		197		23,115		—		23,312
Mortgage servicing rights		—		—		25,731		25,731
Derivative instruments		—		41,276		2,572		43,848

Total	$	197	$	1,032,233	$	30,678	$	1,063,108

Liabilities:
Derivative instruments	$	—	$	41,276	$	1,464	$	42,740

The following table presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three-month periods ended March 31, 2010 and 2009:


	Mortgage						Available-
	Servicing			Derivative			for-sale
	Rights			Instruments			Securities
	(In thousands)
Balance at December 31, 2009	$	35,560		$	1,110		$	2,125
Total net gains (losses) for the year to date included in:
Net income		790			(249	)		(676	)
Other comprehensive income		—			—			—
Purchases, sales, issuances and settlements, net		—			—			—
Transfers in and/or out of Level 3		—			—			—

Balance at March 31, 2010	$	36,350		$	861		$	1,449

Net unrealized gains (losses) included in net income for the quarter relating to assets and liabilities held at March 31, 2010	$	8		$	(249	)	$	—


	Mortgage						Available-
	Servicing			Derivative			for-sale
	Rights			Instruments			Securities
	(In thousands)
Balance at December 31, 2008	$	24,972		$	(683	)	$	2,375
Total net gains for the year to date included in:
Net income		759			1,791			—
Other comprehensive income		—			—			—
Purchases, sales, issuances and settlements, net		—			—			—
Transfers in and/or out of Level 3		—			—			—

Balance at March 31, 2009	$	25,731		$	1,108		$	2,375

Net unrealized (losses) gains included in net income for the quarter relating to assets and liabilities held at March 31, 2009	$	(3,449	)	$	1,791		$	—

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The following table presents the balances of assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2010 and 2009:


	March 31, 2010
									Total
	Level 1		Level 2		Level 3		Total		Gains (Losses)
	(In thousands)
Assets:
Loans held for sale	$	—	$	80,312	$	—	$	80,312	$	—
Impaired loans		—		—		140,444		140,444		(30,855	)
Other real estate owned		—		—		59,269		59,269		(6,024	)

	March 31, 2009
									Total
	Level 1		Level 2		Level 3		Total		Gains (Losses)
	(In thousands)
Assets:
Loans held for sale	$	—	$	168,769	$	—	$	168,769	$	—
Impaired loans		—		—		22,208		22,208		(5,252	)
Other real estate owned		—		—		47,450		47,450		(2,039	)

NOTE 14 – FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB ASC 825, Financial Instruments (“FASB ASC 825”), requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates, methods and assumptions are set forth below for the Company’s financial instruments.

Securities. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

Loans and Leases. Fair values are estimated for portfolios of loans and leases with similar financial characteristics. The fair value of loans and leases is calculated by discounting scheduled cash flows through the estimated maturity using market rates currently available that reflect the credit and interest rate risk inherent in the loan or lease, which results in fair values that may differ from the exit price of the loan or lease. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information.

Average maturity represents the expected average cash flow period, which in some instances is different than the stated maturity. Management has made estimates of fair value discount rates that it believes are reasonable. However, because there is no market for many of these financial instruments, management has no assurance that the fair value presented would be indicative of the value negotiated in an actual sale. New loan and lease rates were used as the discount rate on existing loans and leases of similar type, credit quality and maturity.

Loans Held for Sale. Loans held for sale are carried at the lower of cost or estimated fair value and are subject to nonrecurring fair value adjustments. Estimated fair value is determined on the basis of existing commitments or the prevailing market value of similar loans.

Deposit Liabilities. Under FASB ASC 825, the fair value of deposits with no stated maturity, such as noninterest bearing demand deposits, interest bearing demand deposits and savings, is equal to the amount payable on demand as of the reporting date. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the prevailing rates offered for deposits of similar maturities.

Debt. The carrying amounts for federal funds purchased and repurchase agreements approximate fair value because of their short-term maturity. The fair value of the Company’s fixed-term Federal Home Loan Bank (“FHLB”) advance securities is based on the discounted value of contractual cash flows. The discount rate is estimated using the prevailing rates available for advances of similar maturities. The fair value of the Company’s junior subordinated debt is based on market prices or dealer quotes.

Derivative Instruments. The Company has commitments to fund fixed-rate mortgage loans and forward commitments to sell individual fixed-rate mortgage loans. The fair value of these derivative instruments is based on observable market prices. The Company also enters into interest rate swaps to meet the financing, interest rate and equity risk management needs of its customers. The fair value of these instruments is either an observable market price or a discounted cash flow valuation using the terms of swap agreements but substituting original interest rates with prevailing interest rates.

Lending Commitments. The Company’s lending commitments are negotiated at prevailing market rates and are relatively short-term in nature. As a matter of policy, the Company generally makes commitments for fixed-rate loans for relatively short periods of time. Therefore, the estimated value of the Company’s lending commitments approximates the carrying amount and is immaterial to the financial statements.

The following table presents carrying and fair value information at March 31, 2010 and December 31, 2009:


	March 31, 2010						December 31, 2009
	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value
				(In thousands)
Assets:
Cash and due from banks	$	187,115		$	187,115		$	222,741		$	222,741
Interest bearing deposits with other banks		9,943			9,943			15,704			15,704
Held-to-maturity securities		1,219,983			1,258,150			1,032,822			1,078,075
Available-for-sale securities		891,221			891,221			960,772			960,772
Federal funds sold and securities purchased under agreement to resell		120,000			120,000			75,000			75,000
Net loans and leases		9,521,938			9,597,419			9,599,093			9,744,673
Loans held for sale		80,312			80,345			80,343			80,429

Liabilities:
Noninterest bearing deposits		1,860,579			1,860,579			1,901,663			1,901,663
Savings and interest bearing deposits		5,357,331			5,357,331			5,048,838			5,048,838
Other time deposits		3,776,251			3,799,582			3,727,201			3,757,602
Federal funds purchased and securities sold under agreement to repurchase and other short-term borrowings		483,295			482,219			743,370			743,188
Long-term debt and other borrowings		273,072			287,727			273,174			290,622

Derivative instruments:
Forward commitments to sell fixed rate mortgage loans		36			36			806			806
Commitments to fund fixed rate mortgage loans		825			825			304			304
Interest rate swap position to receive		28,263			28,263			23,992			23,992
Interest rate swap position to pay		(28,546	)		(28,546	)		(24,258	)		(24,258	)

NOTE 15 – OTHER NONINTEREST INCOME AND EXPENSE

The following table details other noninterest income for the three months ended March 31, 2010 and 2009:


	Three months ended
	March 31,
	2010		2009
	(In thousands)
Annuity fees	$	781	$	1,350
Brokerage commissions and fees		1,317		978
Bank-owned life insurance		1,669		1,754
Other miscellaneous income		3,916		6,122

Total other noninterest income	$	7,683	$	10,204

The following table details other noninterest expense for the three months ended March 31, 2010 and 2009:


	Three months ended
	March 31,
	2010		2009
	(In thousands)
Advertising	$	656	$	965
Foreclosed property expense		3,538		2,302
Telecommunications		2,200		2,205
Public relations		1,648		1,547
Data processing		1,470		1,536
Computer software		1,704		1,811
Amortization of intangibles		1,015		1,360
Legal fees		1,328		1,058
Postage and shipping		1,360		1,259
Other miscellaneous expense		15,513		15,225

Total other noninterest expense	$	30,432	$	29,268


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

BancorpSouth, Inc. (the “Company”) is a regional financial holding company headquartered in Tupelo, Mississippi with $13.2 billion in assets. BancorpSouth Bank (the “Bank”), the Company’s wholly-owned banking subsidiary, has commercial banking operations in Mississippi, Tennessee, Alabama, Arkansas, Texas, Louisiana, Florida and Missouri. The Bank’s insurance agency subsidiary also operates an office in Illinois. The Bank and its consumer finance, credit insurance, insurance agency and brokerage subsidiaries provide commercial banking, leasing, mortgage origination and servicing, insurance, brokerage and trust services to corporate customers, local governments, individuals and other financial institutions through an extensive network of branches and offices.

Management’s discussion and analysis provides a narrative discussion of the Company’s financial condition and results of operations. For a complete understanding of the following discussion, you should refer to the unaudited consolidated financial statements for the three-month periods ended March 31, 2010 and 2009 and the notes to such financial statements found under “Part I, Item 1. Financial Statements” of this report. This discussion and analysis is based on reported financial information.

As a financial holding company, the financial condition and operating results of the Company are heavily influenced by economic trends nationally and in the specific markets in which the Company’s subsidiaries provide financial services. Generally, during the past two years, the pressures of the national and regional economic cycle created a difficult operating environment for the financial services industry. The Company is not immune to such pressures and understands that the continuing economic downturn has had a negative impact on the Company and its customers in all of the markets that it serves. The impact was reflected in a decline in credit quality and the increases in the Company’s measures of non-performing loans and leases (“NPLs”) and net charge-offs, compared to the first three months of 2009. While these measures have increased, management believes that the Company is well positioned with respect to overall credit quality and the strength of its allowance for credit losses to meet the challenges of the current economic cycle. Management believes, however, that continued weakness in the economic environment could adversely affect the strength of the credit quality of the Company’s assets overall. Therefore, management will continue to focus on early identification and decisive resolution of potential credit issues.

Most of the revenue of the Company is derived from the operation of its principal operating subsidiary, the Bank. The financial condition and operating results of the Bank are affected by the level and volatility of interest rates on loans, investment securities, deposits and other borrowed funds, and the impact of economic downturns on loan demand, collateral value and creditworthiness of existing borrowers. The financial services industry is highly

SELECTED FINANCIAL QUARTERLY DATA


	Three months ended
	March 31,
	2010			2009
	(Dollars in thousands, except per share data)
Earnings Summary:
Total interest revenue	$	148,658		$	155,618
Total interest expense		36,776			45,742

Net interest income		111,882			109,876
Provision for credit losses		43,519			14,945
Noninterest income		63,332			67,818
Noninterest expense		120,483			119,978

Income before income taxes		11,212			42,771
Income taxes		2,816			13,294

Net income	$	8,396		$	29,477


Balance Sheet — Period-end balances:
Total assets	$	13,230,190		$	13,458,364
Total securities		2,111,204			2,324,339
Loans and leases, net of unearned income		9,710,822			9,712,823
Total deposits		10,994,161			10,091,974
Long-term debt		112,760			286,302
Total shareholders’ equity		1,264,884			1,255,659

Balance Sheet-Average Balances:
Total assets	$	13,127,171		$	13,324,878
Total securities		1,998,928			2,294,335
Loans and leases, net of unearned income		9,767,088			9,695,475
Total deposits		10,878,270			9,908,432
Long-term debt		112,764			286,305
Total shareholders’ equity		1,265,409			1,238,971

Common Share Data:
Basic earnings per share	$	0.10		$	0.35
Diluted earnings per share		0.10			0.35
Cash dividends per share		0.22			0.22
Book value per share		15.16			15.11
Dividend payout ratio		220.00	%		62.86	%

Financial Ratios (Annualized):
Return on average assets		0.26	%		0.90	%
Return on average shareholders’ equity		2.69			9.65
Total shareholders’ equity to total assets		9.56			9.33
Tangible shareholders’ equity to tangible assets		7.52			7.29
Net interest margin-fully taxable equivalent		3.88			3.74

Credit Quality Ratios (Annualized):
Net charge-offs to average loans and leases		1.26	%		0.54	%
Provision for credit losses to average loans and leases		1.78			0.62
Allowance for credit losses to net loans and leases		1.95			1.39
Allowance for credit losses to NPLs		80.15			182.39
Allowance for credit losses to non-performing assets (“NPAs”)		64.04			111.02
NPLs to net loans and leases		2.43			0.76
NPAs to net loans and leases		3.04			1.25

Captial Adequacy:
Tier I capital		11.12	%		10.92	%
Total capital		12.38			12.17
Tier I leverage capital		8.86			8.72

In addition to financial ratios defined by U.S. GAAP, the Company utilizes tangible shareholders’ equity and tangible asset measures when evaluating the performance of the Company. Tangible shareholders’ equity is defined by the Company as total shareholders’ equity less goodwill and identifiable intangible assets. Tangible assets are defined by the Company as total assets less goodwill and identifiable intangible assets. Management believes the ratio of tangible equity to tangible assets to be an important measure of financial strength of the Company. The following table reconciles tangible assets and tangible shareholders’ equity as presented above to U.S. GAAP financial measures as reflected in the Company’s unaudited consolidated financial statements:


	March 31,
	2010		2009
	(In thousands)
Tangible Assets:
Total assets	$	13,230,190	$	13,458,364
Less: Goodwill		270,097		269,062
Other identifiable intangible assets		22,517		26,805

Total tangible assets	$	12,937,576	$	13,162,497

Tangible Shareholders’ Equity
Total shareholders’ equity	$	1,264,884	$	1,255,659
Less: Goodwill		270,097		269,062
Other identifiable intangible assets		22,517		26,805

Total tangible shareholders’ equity	$	972,270	$	959,792

FINANCIAL HIGHLIGHTS

The Company reported net income of $8.4 million for the first quarter of 2010, compared to net income of $29.5 million for the same quarter of 2009. The provision for credit losses was the most significant factor contributing to this decrease in earnings as the first quarter 2010 charge was $43.5 million compared to a charge of $14.9 million for the first quarter of 2009. The larger provision reflects the impact of a significant increase in NPLs, from $73.8 million at March 31, 2009 to $235.7 million at March 31, 2010, as the length and severity of the recession, as well as the lackluster current economic environment, has affected even some of the most well-established borrowers of the Company. This pressure has been particularly evident on real estate construction, acquisition, and development loans. Many of these loans are collateral dependent and the ongoing decline in real estate values continues to impact their carrying value. While encouraged by some recent indicators that suggest economic stabilization, management expects real estate values to remain under pressure, at least over the near term.

The primary source of revenue for the Company is the amount of net interest revenue earned by the Bank. Net interest revenue is the difference between interest earned on loans and investments and interest paid on deposits and other obligations. During the first quarter of 2010, the Company experienced a $207.6 million decline in average interest earning assets and a $346.9 million decline in average interest costing liabilities when compared to the first quarter of 2009. As a result of a declining interest rate environment, average interest-bearing liabilities declining at a faster rate than average interest-earning assets and a 7.0% increase in average noninterest-bearing demand deposits, net interest revenue increased 1.8% to $111.9 million in the first quarter of 2010 compared to $109.9 million in the same quarter of 2009. While loan demand has been weak, the Company has managed to replace loan runoff with new loan production and has continued to benefit from its geographic expansion in recent years into attractive markets such as east Texas and southwest Louisiana.

The Company attempts to diversify its revenue stream by increasing the amount of revenue received from mortgage lending operations, insurance agency activities, brokerage and securities activities and other activities that generate fee income. Management believes this diversification is important to reduce the impact of fluctuations in net interest revenue on the overall operating results of the Company. Noninterest revenue decreased 6.6% for the first quarter of 2010

compared to the first quarter of 2009. One of the primary contributors to the decrease in noninterest revenue was mortgage lending revenue, which decreased 34.3% to $5.0 million for the first quarter of 2010 compared to $7.7 million for the first quarter of 2009. The decrease in mortgage lending revenue was primarily a result of the decrease in mortgage originations, which fell to $207.4 million for the first quarter of 2010 compared to originations of $424.3 million for the same period of 2009. The majority of originations in the first quarter of 2009 were refinancings resulting from historically low mortgage interest rates.

Noninterest revenue was also adversely impacted by a 2.9% decrease in service charges for the first quarter of 2010 compared to the same period in 2009, as a result of lower volumes of items processed. The Company also experienced a 4.3% decrease in insurance commissions from $22.6 million for the first quarter of 2009 compared to $21.7 million for the same period in 2010, resulting from the soft market cycle experienced in the insurance industry. Net security gains of $1.3 million were reported in the first quarter of 2010 consisting of gains on the sale of available-for-sale securities of $2.0 million and the recognition of $0.7 million in other than temporary impairment on pooled trust preferred securities.

Noninterest expense increased by only 0.4% for the first quarter of 2010 compared to the same period in 2009. This increase in noninterest expense included the incremental costs related to the full-service branch bank offices opened since the end of the first quarter of 2009. The Company continues to focus attention on controlling noninterest expense. The major components of net income are discussed in more detail in the various sections that follow.

The Company’s capital and liquidity remained strong during the first quarter of 2010 as its total shareholders’ equity to total assets ratio increased to 9.56% at March 31, 2010, up from 9.33% at March 31, 2009. Also, demand deposits increased 10.7% contributing to an overall deposit increase of 8.9% at March 31, 2010 compared to March 31, 2009. This increase in deposits allowed the Company to reduce its reliance on short-term borrowings, which decreased $983.4 million, or 67.0% at March 31, 2010 compared to March 31, 2009.

RESULTS OF OPERATIONS

Net Interest Revenue

Net interest revenue is the difference between interest revenue earned on assets, such as loans, leases and securities, and interest expense paid on liabilities, such as deposits and borrowings, and continues to provide the Company with its principal source of revenue. Net interest revenue is affected by the general level of interest rates, changes in interest rates and changes in the amount and composition of interest earning assets and interest bearing liabilities. The Company’s long-term objective is to manage interest earning assets and interest bearing liabilities to maximize net interest revenue, while balancing interest rate, credit and liquidity risk. Net interest margin is determined by dividing fully taxable equivalent net interest revenue by average earning assets. For purposes of the following discussion, revenue from tax-exempt loans and investment securities has been adjusted to a fully taxable equivalent (“FTE”) basis, using an effective tax rate of 35%. The following tables present average interest earning assets, average interest bearing liabilities, net interest revenue-FTE, net interest margin-FTE and net interest rate spread for the three months ended March 31, 2010 and 2009:


	Three months ended March 31,
	2010								2009
	Average					Yield/			Average					Yield/
	Balance			Interest		Rate			Balance			Interest		Rate
	(Dollars in millions, yields on taxable equivalent basis)
ASSETS
Loans and leases (net of unearned income) (1)(2)	$	9,767.1		$	127.8		5.31	%	$	9,695.5		$	130.1		5.44	%
Loans held for sale		42.8			0.5		4.80	%		178.2			1.3		2.90	%
Held-to-maturity securities:
Taxable (3)		851.5			9.5		4.54	%		1,146.8			13.1		4.65	%
Non-taxable (4)		215.2			3.8		7.13	%		182.1			3.2		7.23	%
Available-for-sale securities:
Taxable		859.8			8.4		3.96	%		891.7			9.0		4.11	%
Non-taxable (5)		72.3			1.3		7.16	%		73.8			1.4		7.46	%
Federal funds sold, securities purchased under agreement to resell and short-term investments		170.7			0.1		0.24	%		19.1			0.1		1.51	%

Total interest earning assets and revenue		11,979.4			151.4		5.12	%		12,187.2			158.2		5.26	%
Other assets		1,340.6								1,277.5
Less: allowance for credit losses		(193.0	)							(139.8	)


Total	$	13,127.0							$	13,324.9


LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand — interest bearing	$	4,568.1		$	9.4		0.83	%	$	4,090.8		$	12.2		1.21	%
Savings		748.3			0.9		0.48	%		697.7			0.9		0.54	%
Other time		3,741.9			21.5		2.33	%		3,419.2			25.8		3.06	%
Federal funds purchased,securities sold under agreement to repurchase, short-term FHLB borrowings and other short term borrowings		564.2			0.6		0.42	%		1,588.2			1.0		0.24	%
Junior subordinated debt securities		160.3			2.9		7.22	%		160.3			3.0		7.48	%
Long-term FHLB borrowings		112.8			1.5		5.48	%		286.3			2.8		3.98	%

Total interest bearing liabilities and expense		9,895.6			36.8		1.51	%		10,242.5			45.7		1.81	%
Demand deposits — noninterest bearing		1,819.9								1,700.8
Other liabilities		146.2								142.6

Total liabilities		11,861.7								12,085.9
Shareholders’ equity		1,265.4								1,239.0

Total	$	13,127.1							$	13,324.9

Net interest revenue-FTE				$	114.6							$	112.5

Net interest margin-FTE							3.88	%							3.74	%
Net interest rate spread							3.62	%							3.45	%
Interest bearing liabilities to interest earning assets							82.61	%							84.04	%


(1)		Includes taxable equivalent adjustment to interest of approximately $0.8 million for both of the three months ended March 31, 2010 and 2009, respectively, using an effective tax rate of 35%.

(2)		Non-accrual loans are included in Loans (net of unearned income).

(3)		Includes taxable equivalent adjustments to interest of approximately $0.1 million for both of the three months ended March 31, 2010 and 2009, respectively, using an effective tax rate of 35%.

(4)		Includes taxable equivalent adjustments to interest of approximately $1.3 million and $1.1 million for the three months ended March 31, 2010 and 2009, respectively, using an effective tax rate of 35%.

(5)		Includes taxable equivalent adjustment to interest of approximately $0.4 million and $0.5 million for the three months ended March 31, 2010 and 2009, respectively, using an effective tax rate of 35%.

Net interest revenue-FTE for the three month period ended March 31, 2010 increased $2.1 million, or 1.9%, compared to the same period in 2009. This slight increase in net interest revenue for the first quarter of 2010 was primarily a result of the increase in low cost demand deposits coupled with the decline in other time deposits and short-term borrowing rates which more than offset the declining loan and investment yields experienced by the Company as a result of reduced interest rates.

Interest revenue-FTE for the three-month period ended March 31, 2010 decreased $6.9 million, or 4.3%, compared to the same period in 2009. The decrease in interest revenue-FTE was primarily a result of the declining loan yields as interest rates were at historically low levels resulting in an overall decrease in the yield on average interest-earning assets of 14 basis points for the three-month period ended March 31, 2010, compared to the same period in 2009. Average interest-earning assets decreased $207.8 million, or 1.7%, for the three-month period ended March 31, 2010 compared to the same period in 2009. The decrease in average interest earning assets for the first quarter of 2010 was primarily a result of the decrease in loans held for sale as the Company sold its remaining portfolio of student loans, lower levels of mortgages held for sale resulting from lower production volume and lower levels of held-to-maturity securities as the proceeds from some maturing securities were used to pay off short-term borrowings.

Interest expense for the three-month period ended March 31, 2010 decreased $8.9 million, or 19.5%, compared to the same period in 2009. The decrease in interest expense was a result of the increase in lower cost interest bearing demand deposits combined with the decrease in other time deposit and short-term borrowing rates resulting in an overall decrease in the average rate paid of 30 basis points for the first quarter of 2010. Average interest bearing liabilities decreased $346.9 million, or 3.4%, for the three-month period ended March 31, 2010 compared to the same period in 2009. The decrease in average interest bearing liabilities was primarily a result of the decrease in short-term borrowings, with this decrease somewhat offset by the increase in lower cost interest bearing demand deposits.

Net interest margin increased to 3.88% for the three months ended March 31, 2010 from 3.74% for the same period in 2009. The increase in the net interest margin for the first quarter of 2010 was a result of the Company’s ability to reduce higher rate time deposits while increasing lower cost demand deposits and short-term Federal Home Loan Bank (“FHLB”) and other borrowings. The Company also experienced a decrease in average earning assets, primarily as a result of the decrease in loans held for sale as the Company sold its remaining portfolio of student loans and lower levels of mortgages held for sale resulting from lower production volume.

Interest Rate Sensitivity

The interest rate sensitivity gap is the difference between the maturity or repricing opportunities of interest sensitive assets and interest sensitive liabilities for a given period of time. A prime objective of the Company’s asset/liability management is to maximize net interest margin while maintaining a reasonable mix of interest sensitive assets and liabilities. The following table presents the Company’s interest rate sensitivity at March 31, 2010:


	Interest Rate Sensitivity — Maturing or Repricing Opportunities
				91 Days			Over One
	0 to 90			to			Year to		Over
	Days			One Year			Five Years		Five Years
	(In thousands)
Interest earning assets:
Interest bearing deposits with banks	$	9,943		$	—		$	—	$	—
Federal funds sold and securities purchased under agreement to resell		120,000			—			—		—
Held-to-maturity securities		189,914			256,403			484,751		288,915
Available-for-sale and trading securities		41,533			65,127			379,314		405,246
Loans and leases, net of unearned income		4,987,168			1,649,204			2,836,360		238,091
Loans held for sale		53,452			346			2,083		24,432

Total interest earning assets		5,402,009			1,971,080			3,702,508		956,684

Interest bearing liabilities:
Interest bearing demand deposits and savings		5,357,331			—			—		—
Other time deposits		670,918			1,795,220			1,308,904		1,209
Federal funds purchased and securities sold under agreement to repurchase, short-term FHLB borrowings and other short-term borrowings		481,795			1,500			—		—
Long-term FHLB borrowings and junior subordinated debt securities		—			—			56,260		216,812
Other		—			—			—		88

Total interest bearing liabilities		6,510,044			1,796,720			1,365,164		218,109

Interest rate sensitivity gap	$	(1,108,035	)	$	174,360		$	2,337,344	$	738,575

Cumulative interest sensitivity gap	$	(1,108,035	)	$	(933,675	)	$	1,403,669	$	2,142,244

In the event interest rates increase after March 31, 2010, based on this interest rate sensitivity gap, it is likely that the Company would experience slightly decreased net interest revenue in the following one-year period, as the cost of funds would increase at a more rapid rate than interest revenue on interest-earning assets. Conversely, in the event interest rates decrease after March 31, 2010, based on this interest rate sensitivity gap, the Company would likely experience increased net interest revenue in the following one-year period. It should be noted that the balances shown in the table above are at March 31, 2010 and may not be reflective of positions at other times during the year or in subsequent periods. Allocations to specific interest rate sensitivity periods are based on the earlier of maturity or repricing dates. The Company was able to manage its liability sensitivity during the first quarter of 2010 by reducing low rate, short-term borrowings and extending the average maturity of time deposits.

As of March 31, 2010, the Bank had approximately $2.6 billion in variable rate loans whose interest rate was determined by a floor, or minimum rate. This portion of the loan portfolio had an average interest rate earned of 4.43%, an average maturity of 26 months and a fully-indexed interest rate of 3.68% at March 31, 2010. The fully-indexed interest rate is the interest rate that these loans would be earning without the effect of interest rate floors. While the Bank benefits from interest rate floors in the current interest rate environment, loans currently earning their floored interest rate may not experience an immediate impact on the interest rate earned should key indices rise. Examples of key indices include the Wall Street Journal prime rate, the Bank’s prime rate and the London Interbank Offering Rate. The Bank’s average interest rate earned will be impacted by the timing and magnitude of a rise in key indices.

Interest Rate Risk Management

Interest rate risk refers to the potential changes in net interest income and the economic value of equity (“EVE”) resulting from adverse movements in interest rates. EVE is defined as the net present value of the balance sheet’s

cash flow. EVE is calculated by discounting projected principal and interest cash flows under the current interest rate environment. The present value of asset cash flows less the present value of liability cash flows derives the net present value of the Company’s balance sheet. The Company’s Asset / Liability Committee utilizes financial simulation models to measure interest rate exposure. These models are designed to simulate the cash flow and accrual characteristics of the Company’s balance sheet. In addition, the models incorporate assumptions about the direction and volatility of interest rates, the slope of the yield curve, and the changing composition of the Company’s balance sheet arising from both strategic plans and customer behavior. Finally, management makes assumptions regarding loan and deposit growth, pricing, and prepayment speeds.

The sensitivity analysis included below delineates the percentage change in net interest income and EVE derived from instantaneous parallel rate shifts of plus and minus 200 basis points. The impact of a minus 200 basis point rate shock as of March 31, 2010 and 2009 was not considered meaningful because of the historically low interest rate environment. Variances were calculated from the base case scenario, which reflected prevailing market rates. Management assumed all non-maturity deposits have an average life of one day for calculating EVE, which management believes is the most conservative approach.


	Net Interest Income
	% Variance from Base Case Scenario
Rate Shock	March 31, 2010			March 31, 2009
+200 basis points		-2.8	%		-5.8	%
-200 basis points		n/a			n/a


	Economic Value of Equity
	% Variance from Base Case Scenario
Rate Shock	March 31, 2010			March 31, 2009
+200 basis points		-10.5	%		-9.9	%
-200 basis points		n/a			n/a

In addition to instantaneous rate shocks, the Company monitors interest rate exposure through simulations of gradual interest rate changes over a 12-month time horizon. The results of these analyses are included in the following table:


	Net Interest Income
	% Variance from Base Case Scenario
Rate Ramp	March 31, 2010			March 31, 2009
+200 basis points		-3.1	%		-5.2	%
-200 basis points		n/a			n/a

Provision for Credit Losses and Allowance for Credit Losses

In the normal course of business, the Bank assumes risks in extending credit. The Bank manages these risks through conservative underwriting in accordance with its lending policies, loan review procedures and the diversification of its loan portfolio. Although it is not possible to predict credit losses with certainty, management regularly reviews the characteristics of the loan portfolio to determine its overall risk profile and quality.

Attention is paid to the quality of the loan portfolio through a formal loan review process. The Board of Directors of the Bank has appointed a loan loss reserve valuation committee (the “Loan Loss Committee”) that is responsible for ensuring that the allowance for credit losses provides coverage of both known and inherent losses. The Loan Loss Committee meets at least quarterly to determine the amount of adjustments to the allowance for credit losses. The Loan Loss Committee is composed of senior management from the Bank’s loan administration and finance departments.

The provision for credit losses is the periodic cost of providing an allowance or reserve for estimated probable losses on loans and leases. The Loan Loss Committee bases its estimates of losses on three primary components:

(1) estimates of inherent losses which may exist in various segments of performing loans and leases; (2) specifically identified losses in individually analyzed credits; and (3) qualitative factors which may impact the performance of the portfolio. Inherent losses are estimated based upon the probability of default of individual borrowers and the amount of losses expected in the event of any such default. Factors such as financial condition, recent credit performance, delinquency, liquidity, cash flows, collateral type and value are used to assess credit risk. Expected loss estimates are influenced by the historical losses experienced by the Bank for loans and leases of comparable creditworthiness and structure. Specific loss assessments are performed for loans and leases of significant size and delinquency based upon the collateral protection and expected future cash flows to determine the amount of impairment under FASB ASC 310, Receivables (“FASB ASC 310”). In addition, qualitative factors such as changes in economic and business conditions, concentrations of risk, loan and lease growth, acquisitions and changes in portfolio risk due to regulatory or internal changes are considered in determining the adequacy of the level of the allowance for credit losses.

As a result of the deteriorating housing market and the negative impact that the weakened economy has had on builders and developers, management placed additional focus on the real estate construction, acquisition and development portfolio during the first quarter of 2010 in connection with estimating the adequacy of the allowance for credit losses because of the credit risks associated with this portfolio.

An independent loan review department of the Bank is responsible for reviewing the credit rating and classification of individual credits and assessing trends in the portfolio, adherence to internal credit policies and procedures and other factors that may affect the overall adequacy of the allowance.

Any loan or portion thereof which is classified as “loss” by regulatory examiners or which is determined by management to be uncollectible, because of factors such as the borrower’s failure to pay interest or principal, the borrower’s financial condition, economic conditions in the borrower’s industry or the inadequacy of underlying collateral, is charged off.

The following table provides an analysis of the allowance for credit losses for the periods indicated:


	Three months ended
	March 31,
	2010			2009
	(Dollars in thousands)
Balance, beginning of period	$	176,043		$	132,793

Loans and leases charged off:
Commercial and industrial		(2,169	)		(1,147	)
Real estate
Consumer mortgages		(4,598	)		(4,073	)
Home equity		(1,683	)		(1,153	)
Agricultural		(207	)		(37	)
Commercial and industrial-owner occupied		(2,465	)		(836	)
Construction, acquisition and development		(15,769	)		(4,377	)
Commercial		(2,278	)		(560	)
Credit cards		(1,160	)		(1,158	)
All other		(1,050	)		(810	)

Total loans charged off		(31,379	)		(14,151	)


Recoveries:
Commercial and industrial		63			179
Real estate
Consumer mortgages		64			220
Home equity		52			3
Agricultural		—			2
Commercial and industrial-owner occupied		7			8
Construction, acquisition and development		56			86
Commercial		12			56
Credit cards		150			138
All other		297			353

Total recoveries		701			1,045


Net charge-offs		(30,678	)		(13,106	)

Provision charged to operating expense		43,519			14,945

Balance, end of period	$	188,884		$	134,632


Average loans for period	$	9,767,088		$	9,695,475


Ratios:
Net charge-offs to average loans (annualized)		1.26	%		0.54	%
Provision for credit losses to average loans and leases, net of unearned (annualized)		1.78	%		0.62	%
Allowance for credit losses to loans and leases, net of unearned		1.95	%		1.39	%

The increase in the provision for credit losses in the first quarter of 2010 compared to the first quarter of 2009 was primarily a result of the increased credit risk experienced by the Company attributable to the length and severity of the recession, as well as the lackluster prevailing economic environment. Increases in net charge-offs in the first quarter of 2010 along with a significant increase in NPLs resulted in a provision for credit losses of $43.5 million compared to a provision of $14.9 million in the same quarter of 2009. Annualized net charge-offs as a percentage of average loans and leases increased to 1.26% for the first quarter of 2010 compared to net charge-offs of 0.54% in the same quarter of 2009. The Company continues to experience increased losses within the real estate

construction, acquisition and development segment of its loan portfolio and in its consumer mortgage portfolio. The real estate construction, acquisition and development and the consumer mortgage portfolios experienced increased losses in the first quarter of 2010 compared to the same period in 2009, as a result of declining collateral values related to the real estate securing these loans, as well as the negative impact that the weakened economy and housing market has had on builders and developers. While some recent indicators suggest economic stabilization, management expects real estate values to remain under pressure, at least over the near term.

The breakdown of the allowance by loan and lease category is based, in part, on evaluations of specific loan and lease histories and on economic conditions within specific industries or geographical areas. Accordingly, because all of these conditions are subject to change, the allocation is not necessarily indicative of the breakdown of any future allowance or losses. The following table presents (i) the breakdown of the allowance for credit losses by loan and lease category and (ii) the percentage of each category in the loan and lease portfolio to total loans and leases at the dates indicated:


	March 31,										December 31,
	2010					2009					2009
	Allowance		% of			Allowance		% of			Allowance		% of
	for		Total			for		Total			for		Total
	Credit		Loans			Credit		Loans			Credit		Loans
	Losses		and Leases			Losses		and Leases			Losses		and Leases
	(Dollars in thousands)
Commercial and industrial	$	21,872		14.87	%	$	18,785		15.57	%	$	21,154		15.11	%
Real estate
Consumer mortgages		36,250		20.88	%		30,523		20.98	%		37,048		20.53	%
Home equity		6,641		5.52	%		5,896		5.35	%		7,218		5.60	%
Agricultural		3,992		2.60	%		3,240		2.46	%		4,192		2.67	%
Commercial and industrial-owner occupied		23,715		14.62	%		20,072		14.98	%		22,989		14.76	%
Construction, acquisition and development		53,706		15.64	%		29,032		17.43	%		46,193		14.86	%
Commercial		28,309		18.06	%		18,439		17.09	%		26,694		18.39	%
Credit cards		3,268		1.05	%		1,473		1.01	%		3,481		1.10	%
All other		11,131		6.76	%		7,172		5.13	%		7,074		6.98	%

Total	$	188,884		100.00	%	$	134,632		100.00	%	$	176,043		100.00	%

Noninterest Revenue

The components of noninterest revenue for the three months ended March 31, 2010 and 2009 and the corresponding percentage changes are shown in the following tables:


	Three months ended
	March 31,
	2010		2009		% Change
	(Dollars in thousands)
Mortgage lending	$	5,025	$	7,652		(34.3	)%
Credit card, debit card and merchant fees		8,810		8,348		5.5
Service charges		16,262		16,755		(2.9	)
Trust income		2,587		2,209		17.1
Securities gains, net		1,297		5		N/M
Insurance commissions		21,668		22,645		(4.3	)
Annuity fees		781		1,350		(42.1	)
Brokerage commissions and fees		1,317		978		34.7
Bank-owned life insurance		1,669		1,754		(4.8	)
Other miscellaneous income		3,916		6,122		(36.0	)

Total noninterest revenue	$	63,332	$	67,818		(6.6	)%


N/M=Not meaningful

The Company’s revenue from mortgage lending typically fluctuates as mortgage interest rates change and is primarily attributable to two activities — origination and sale of new mortgage loans and servicing mortgage loans. The Company’s normal practice is to originate mortgage loans for sale in the secondary market and to either retain or release the associated MSRs with the loan sold.

Origination revenue, a component of mortgage lending revenue, is comprised of gains or losses from the sale of the mortgage loans originated, origination fees, underwriting fees and other fees associated with the origination of loans. Mortgage loan origination volumes of $207.4 million and $424.3 million produced origination revenue of $3.4 million and $8.5 million for the quarters ended March 31, 2010 and 2009, respectively. Origination volumes for the first quarter of 2009 were driven by significant volumes of refinancings during that low mortgage rate period.

Revenue from the servicing process, another component of mortgage lending revenue, includes fees from the actual servicing of loans. Revenue from the servicing of loans was $2.9 million and $2.6 million for the quarters ended March 31, 2010 and 2009, respectively. Mortgage lending revenue is also impacted by principal payments, prepayments and payoffs on loans in the servicing portfolio. Decreases in value from principal payments, prepayments and payoffs were $1.3 million and $1.9 million for the quarters ended March 31, 2010 and 2009, respectively. Changes in the fair value of the Company’s MSRs are generally a result of changes in mortgage interest rates from the previous reporting date. An increase in mortgage interest rates typically results in an increase in the fair value of the MSRs while a decrease in mortgage interest rates typically results in a decrease in the fair value of MSRs. The Company does not hedge the change in fair value of its MSRs and is susceptible to significant fluctuations in their value in changing interest rate environments. Reflecting this sensitivity to interest rates, the fair value of MSRs was virtually unchanged during the first quarter of 2010 and decreased $1.5 million for the quarter ended March 31, 2009.

The following tables present the Company’s mortgage lending operations for the three months ended March 31, 2010 and 2009:


	Three months ended
	March 31,
	2010			2009
	Amount			Amount			% Change
	(Dollars in thousands)
Production revenue:
Origination	$	3,426		$	8,521			(59.8	)%
Servicing		2,893			2,579			12.2
Payoffs/Paydowns		(1,302	)		(1,938	)		(32.8	)
Total		5,017			9,162			(45.2	)
Market value adjustment		8			(1,510	)	NM

Mortgage lending revenue	$	5,025		$	7,652			(34.3	)


	(Dollars in millions)
Origination volume	$	207		$	424			(51.2	)


Mortgage loans serviced at period-end	$	3,451		$	3,133			10.2


NM=Not meaningful

Credit card, debit card and merchant fees increased for the comparable three-month periods as a result of an increase in the number and monetary volume of items processed. Service charges on deposit accounts decreased for the comparable periods as a result of a lower volume of items processed. Trust income increased for the comparable periods primarily as a result of increases in the value of assets under management or in custody. The decrease in insurance commissions for the comparable periods was primarily attributable to lower insurance premiums resulting in reduced commissions paid by the underwriters in a soft insurance market.

Annuity fees decreased for the comparable three-month periods as a result of the prevailing interest rate environment. Brokerage commissions and fees increased for the comparable three-month periods as activity increased as the financial markets recovered somewhat. Bank-owned life insurance revenue decreased during the first three months of 2010 compared to the same period in 2009 as a result of the Company recording life insurance proceeds of $1.4 million, net of cash surrender value.

Noninterest Expense

The components of noninterest expense for the three months ended March 31, 2010 and 2009 and the corresponding percentage changes are shown in the following table:


	Three months ended
	March 31,
	2010		2009		% Change
	(Dollars in thousands)
Salaries and employee benefits	$	69,287	$	71,363		(2.9	)%
Occupancy, net		10,775		9,999		7.8
Equipment		5,739		6,222		(7.8	)
Deposit insurance assessments		4,250		3,126		36.0
Advertising		656		965		(32.0	)
Foreclosed property expense		3,538		2,302		53.7
Telecommunications		2,200		2,205		(0.2	)
Public relations		1,648		1,547		6.5
Data processing		1,470		1,536		(4.3	)
Computer software		1,704		1,811		(5.9	)
Amortization of intangibles		1,015		1,360		(25.4	)
Legal fees		1,328		1,058		25.5
Postage and shipping		1,360		1,259		8.0
Other miscellaneous expense		15,513		15,225		1.9

Total noninterest expense	$	120,483	$	119,978		0.4	%

Salaries and employee benefits expense for the three months ended March 31, 2010 decreased slightly compared to the same period in 2009, primarily because the Company employed fewer people at March 31, 2010. Equipment expense decreased for the comparable three-month period primarily because of decreased depreciation. The increase in deposit insurance assessments for the three-months ended March 31, 2010 was primarily a result of deposit growth, accrual adjustments and a slightly higher assessment rate. While the Company experienced some minor fluctuations in various components of other noninterest expense including advertising, legal, data processing, and amortization of intangibles, total noninterest expense remained relatively static the first three months ended 2010, compared with the same period in 2009.

Income Tax

Income tax expense was $2.8 million for the first quarter of 2010, a 78.8% decrease from $13.3 million for the first quarter of 2009. The decrease in income tax expense for the first quarter of 2010, compared to the first quarter of 2009, was a result of the decrease in net income before tax, as net income before tax decreased 73.8% from the first quarter 2010 to the first quarter of 2009. The effective tax rates for the first quarters of 2010 and 2009 were 25.1% and 31.1%, respectively. The decrease in the effective tax rate for the first quarter of 2010 compared to the first quarter of 2009 was a result of nontaxable income remaining relatively stable while taxable income decreased.

FINANCIAL CONDITION

The percentage of earning assets to total assets measures the effectiveness of management’s efforts to invest available funds into the most efficient and profitable uses. Earning assets at March 31, 2010 were $12.0 billion, or 91.0% of total assets, compared with $11.9 billion, or 90.7% of total assets, at December 31, 2009.

Loans and Leases

The Bank’s loan and lease portfolio represents the largest single component of the Company’s earning asset base, comprising 81.9% of average earning assets during the first quarter of 2010. The Bank’s lending activities include both commercial and consumer loans and leases. Loan and lease originations are derived from a number of sources, including direct solicitation by the Bank’s loan officers, existing depositors and borrowers, builders, attorneys, walk-in customers and, in some instances, other lenders, real estate broker referrals and mortgage loan companies. The Bank has established systematic procedures for approving and monitoring loans and leases that vary depending on the size and nature of the loan or lease and applies these procedures in a disciplined manner. The Company’s

loans and leases are widely diversified by borrower and industry. At March 31, 2010, 44.0% of the Company’s loans and leases were located within the Mississippi market with the remainder of the Company’s loans and leases spread over the Bank’s geographic footprint in seven other states. Loans and leases, net of unearned income, totaled $9.7 billion at March 31, 2010, representing a slight decrease from $9.8 billion at December 31, 2009. The decrease in loans and leases, net of unearned income, was primarily a result of the continued low loan demand in the markets served by the Company; however, the Company was able to replace natural loan runoff with new loan production.

The following table shows the composition of the Company’s gross loans and leases by collateral type at the dates indicated:


	March 31,				December 31,
	2010		2009		2009
	(In thousands)
Commercial and industrial	$	1,515,404	$	1,437,006	$	1,514,419
Real estate
Consumer mortgages		2,014,085		2,037,439		2,017,067
Home equity		549,924		519,528		550,085
Agricultural		266,649		238,466		262,069
Commercial and industrial-owner occupied		1,423,098		1,455,422		1,449,554
Construction, acquisition and development		1,428,882		1,692,526		1,459,503
Commercial		1,809,660		1,660,211		1,806,766
Credit cards		101,464		98,450		108,086
All other		646,915		620,739		655,437

Total	$	9,756,081	$	9,759,787	$	9,822,986

Commercial and Industrial - Commercial and industrial loans are loans and leases to finance business operations, equipment and owner-occupied facilities primarily for small and medium-sized enterprises. These include both lines of credit for terms of one year or less and term loans which are amortized over the useful life of the assets financed. Personal guarantees are generally required for these loans. Also included in this category are loans to finance agricultural production and business credit card lines.

Real Estate – Consumer Mortgages — Consumer mortgages are first- or second-lien loans to consumers secured by a primary residence or second home. These loans are generally amortized over terms up to 15 or 20 years with maturities of 3 to 5 years. The loans are secured by properties located within the local market area of the community bank which originates and services the loan. These loans are underwritten in accordance with the Bank’s general loan policies and procedures which require, among other things, proper documentation of each borrower’s financial condition, satisfactory credit history and property value. Consumer mortgages outstanding declined during 2009 as the housing sector slowed and lower long-term mortgage rates were available. In addition to loans originated through the Bank’s branches, the Bank originates and services consumer mortgages sold in the secondary market which are underwritten and closed pursuant to investor and agency guidelines. The Bank’s exposure to sub-prime mortgages is minimal.

Real Estate – Home Equity — Home equity loans include revolving credit lines which are secured by a first or second lien on a borrower’s residence. Each loan is underwritten individually by lenders who specialize in home equity lending and must conform to Bank lending policies and procedures for consumer loans as to borrower’s financial condition, ability to repay, satisfactory credit history and the condition and value of collateral. Properties securing home equity loans are located in the local market areas of the community bank originating and servicing the loan. The Bank has not purchased home equity loans from brokers or other lending institutions.

Real Estate – Agricultural — Agricultural loans include loans to purchase agricultural land and production lines secured by farm land. Agricultural loans outstanding remain stable.

Real Estate – Commercial and Industrial-Owner Occupied — Commercial and industrial-owner occupied loans include loans secured by business facilities to finance business operations, equipment and owner-occupied facilities

primarily for small and medium-sized enterprises. These include both lines of credit for terms of one year or less and term loans which are amortized over the useful life of the assets financed. Personal guarantees are generally required for these loans.

Real Estate – Construction, Acquisition and Development — Construction, acquisition and development loans include both loans and credit lines for the purpose of purchasing, carrying and developing land into commercial or residential subdivisions. Also included are loans and lines for construction of residential, multi-family and commercial buildings. These loans are often structured with interest reserves to fund interest costs during the construction and development period. Additionally, certain loans are structured with interest only terms. The Bank engages in construction and development lending only in local markets served by its branches. The weakened economy and housing market has negatively impacted builders and developers in particular. Sales of finished houses slowed during 2009 and activity remained slow during the first quarter of 2010 which has resulted in lower demand for residential lots and development land. The Company curtailed the origination of new construction and development projects significantly during 2009 and the Company maintained that stance during the first quarter of 2010.

Real Estate – Commercial — Commercial loans include loans to finance income-producing commercial and multi-family properties. Lending in this category is generally limited to properties located in the Bank’s trade area with only limited exposure to properties located elsewhere but owned by in-market borrowers. Loans in this category include loans for neighborhood retail centers, medical and professional offices, single retail stores, warehouses and apartments leased generally to local businesses and residents. The underwriting of these loans takes into consideration the occupancy and rental rates as well as the financial health of the borrower. The Bank’s exposure to national retail tenants is minimal. The Bank has not purchased commercial real estate loans from brokers or third-party originators.

Credit Cards — Credit cards include consumer MasterCard accounts, Visa accounts and private label accounts for local merchants. The Bank offers credit cards primarily to its deposit and loan customers. Credit card balances outstanding continue to be stable.

All Other — All other loans include consumer installment loans and loans and leases to state, county and municipal governments and non-profit agencies. Consumer installment loans include term loans of up to five years secured by automobiles, boats and recreational vehicles. The Bank offers lease financing for vehicles and heavy equipment to state, county and municipal governments and medical equipment to healthcare providers across the southern states.

NPLs consist of non-accrual loans and leases, loans and leases 90 days or more past due, still accruing, and accruing loans and leases that have been restructured (primarily in the form of reduced interest rates and modified payment terms) because of the borrower’s weakened financial condition. The Bank’s policy provides that loans and leases are generally placed in non-accrual status if, in management’s opinion, payment in full of principal or interest is not expected or payment of principal or interest is more than 90 days past due, unless the loan or lease is both well-secured and in the process of collection. The Bank’s NPAs consist of NPLs and other real estate owned, which consists of foreclosed properties. The Bank’s NPAs, which are carried either in the loan account or other assets on the consolidated balance sheets, depending on foreclosure status, were as follows at the end of each period presented:


	March 31,						December 31,
	2010			2009			2009
	(Dollars in thousands)
Non-accrual loans and leases	$	199,637		$	38,936		$	144,013
Loans 90 days or more past due, still accruing		20,452			27,299			36,301
Restructured loans and leases, but accruing		15,576			7,581			6,161

Total NPLs		235,665			73,816			186,475


Other real estate owned		59,269			47,450			59,265

Total NPAs	$	294,934		$	121,266		$	245,740


NPLs to net loans and leases		2.43	%		0.76	%		1.91	%
NPAs to net loans and leases		3.04	%		1.25	%		2.51	%

NPLs continued to increase at March 31, 2010 compared to December 31, 2009 and March 31, 2009. NPLs were $235.7 million at the end of the first quarter of 2010, an increase of $49.2 million from the end of fourth quarter and an increase of $161.8 million from March 31, 2009. Included in NPLs at March 31, 2010 were $171.3 million of loans that had been subjected to impairment testing. These impaired loans had a specific reserve of $30.8 million included in the allowance for credit losses of $188.9 million at March 31, 2010, and were net of $38.9 million in partial charge-downs previously taken on these impaired loans. NPLs at December 31, 2009 included $128.5 million of loans that had been subjected to impairment testing. These impaired loans had a specific reserve of $22.7 million included in the allowance for credit losses of $176.0 million at December 31, 2009. NPLs at March 31, 2009 included $27.5 million of loans that had been subjected to impairment testing. These impaired loans had a specific reserve of $5.3 million included in the allowance for credit losses of $134.6 million at March 31, 2009.

The increase in other real estate owned from March 31, 2009 to March 31, 2010 is reflective of the general slow-down in the residential real estate sector in certain of the Bank’s markets, resulting in increased foreclosures. The Bank recorded losses from the loans that were secured by these foreclosed properties in the allowance for credit losses at the time of foreclosure. The increase in non-accrual loans from March 31, 2009 to March 31, 2010 also reflects the effects of the recent economic environment on the Bank’s loan portfolio as a significant portion of the rise in the Bank’s NPLs was attributable to problems developing for established customers with real estate related loans, primarily in the Bank’s more urban markets in the fourth quarter of 2009 and the first quarter of 2010. These problems resulted primarily from declines in appraised real estate values, decreased liquidity of certain borrowers and certain other borrower specific factors. Of the Bank’s real estate construction, acquisition and development loans, which totaled $1.4 billion at March 31, 2010, $637.7 million represented loans made by the Bank’s locations in Alabama and Tennessee, including the greater Memphis, Tennessee area, a portion of which is in northwest Mississippi. These areas have experienced a higher incidence of non-performing loans, primarily as a result of a severe downturn in the housing market. Of the Company’s total non-performing loans of $235.7 million at March 31, 2010, $135.1 million were loans made within these markets. These markets continue to be affected by high inventories of unsold homes, unsold lots and undeveloped land intended for use as housing developments.

The ultimate impact of the economic downturn on the Company’s financial condition and results of operations will depend on its severity and duration. Continued weakness in the economy could adversely affect the Bank’s volume of NPLs. The Bank will continue to remain focused on early identification and effective resolution of potential credit problems. For reporting purposes, if a restructured loan is 90 days or more past due or has been placed in non-accrual status, the restructured loan is included in the loans 90 days or more past due category or the non-accrual loan category of NPAs. At March 31, 2010, $90.4 million restructured loans were included in the loans 90 days or more past due or non-accrual loan category.

At March 31, 2010, the Company did not have any concentration of loans or leases in excess of 10% of total loans and leases outstanding which were not otherwise disclosed as a category of loans or leases. Loan concentrations are considered to exist when there are amounts loaned to multiple borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other conditions. The Bank conducts business in a geographically concentrated area and has a significant amount of loans secured by real estate to borrowers in

varying activities and businesses but does not consider these factor alone in identifying loan concentrations. The ability of the Bank’s borrowers to repay loans is somewhat dependent upon the economic conditions prevailing in the Bank’s market areas.

In the normal course of business, management becomes aware of possible credit problems in which borrowers exhibit potential for the inability to comply with the contractual terms of their loans and leases, but which do not yet meet the criteria for disclosure as non-performing loans and leases. Historically, some of these loans and leases are ultimately restructured or placed in non-accrual status. At March 31, 2010, the Bank had approximately $15.3 million of potential problem loans or leases that were not included in the non-accrual loans and leases or in the loans 90 days or more past due categories, but for which management had concerns as to the ability of such borrowers to comply with the contractual terms of their loans and leases.

Collateral for some of the Bank’s loans and leases is subject to fair value evaluations that fluctuate with market conditions and other external factors. In addition, while the Bank has certain underwriting obligations related to such evaluations, the evaluations of some real property and other collateral are dependent upon third-party independent appraisers employed either by the Bank’s customers or as independent contractors of the Bank. During the current economic cycle, some subsequent fair value appraisals have reported lower values than were originally reported. These declining collateral values could impact future losses and recoveries.

The following table provides additional details related to the make-up of the Company’s loan and lease portfolio and the distribution of NPLs at March 31, 2010:


			90+ Days				Restructured				NPLs as a
			Past Due still		Non-accruing		Loans, still				% of
Loans and leases, net of unearned	Outstanding		Accruing		Loans		accruing		NPLs		Outstanding
					(Dollars in thousands)
Commercial and industrial	$	1,470,145	$	1,405	$	6,306	$	420	$	8,131		0.6	%
Real estate
Consumer mortgages		2,014,085		10,984		24,047		2,347		37,378		1.9
Home equity		549,924		320		761		100		1,181		0.2
Agricultural		266,649		199		3,049		651		3,899		1.5
Commercial and industrial-owner occupied		1,423,098		1,482		15,083		1,552		18,117		1.3
Construction, acquisition and development		1,428,882		3,339		116,191		3,234		122,764		8.6
Commercial		1,809,660		1,671		30,094		3,875		35,640		2.0
Credit cards		101,464		296		1,072		3,341		4,709		4.6
All other		646,915		756		3,034		56		3,846		0.6

Total	$	9,710,822	$	20,452	$	199,637	$	15,576	$	235,665		2.4	%

The following table provides selected characteristics of the Company’s real estate construction, acquisition and development loan portfolio at March 31, 2010:


			90+ Days				Restructured				NPLs as a
Real Estate Construction,			Past Due still		Non-accruing		Loans, still				% of
Acquisition and Development	Outstanding		Accruing		Loans		accruing		NPLs		Outstanding
					(Dollars in thousands)
Multi-family construction	$	12,738	$	—	$	—	$	—	$	—		—	%
Condominiums		15,860		—		9,071		—		9,071		57.2
One-to-four family construction		242,209		748		4,223		—		4,971		2.1
Recreation and all other loans		39,938		146		—		—		146		0.4
Commercial construction		236,111		16		12,650		—		12,666		5.4
Commercial acquisition and development		280,630		678		463		—		1,141		0.4
Residential acquisition and development		601,396		1,751		89,783		3,234		94,768		15.8

Total	$	1,428,882	$	3,339	$	116,191	$	3,234	$	122,764		8.6	%

Securities

The Company uses the Bank’s securities portfolios to make various term investments, to provide a source of liquidity and to serve as collateral to secure certain types of deposits. Held-to-maturity securities increased 18.1% to $1.2 billion at March 31, 2010, compared to $1.0 billion at December 31, 2009. Available-for-sale securities were $891.2 million at March 31, 2010, compared to $960.8 million at December 31, 2009, a 7.2% decrease.

The following table shows the held-to-maturity and available-for-sale securities portfolios by credit rating as obtained from Moody’s rating service as of March 31, 2010:


	Amortized Cost					Estimated Fair Value
	Amount		%			Amount		%
			(Dollars in thousands)
Available-for-sale Securities:
Aaa	$	752,249		86.9	%	$	776,271		87.10	%
Aa1 to Aa3		40,821		4.7	%		40,947		4.59	%
A1 to A3		6,002		0.7	%		6,118		0.69	%
Baa1		1,210		0.1	%		1,215		0.14	%
Caa1		66		—			131		0.01	%
C		1,449		0.2	%		1,449		0.16	%
Not rated (1)		63,564		7.3	%		65,090		7.30	%

Total	$	865,361		100.0	%	$	891,221		100.00	%


Held-to-maturity Securities:
Aaa	$	989,140		81.08	%	$	1,018,721		83.16	%
Aa1 to Aa3		56,768		4.65	%		38,385		3.13	%
A1 to A3		39,278		3.22	%		36,034		2.94	%
Baa1 to Baa3		11,944		0.98	%		8,638		0.71	%
Not rated (1)		122,853		10.07	%		123,207		10.06	%

Total	$	1,219,983		100.00	%	$	1,224,985		100.00	%


(1)		Not rated securities primarily consist of Mississippi and Arkansas municipal bonds.

Deposits and Other Interest-Bearing Liabilities

Deposits originating within the communities served by the Bank continue to be the Bank’s primary source of funding its earning assets. The Company has been able to compete effectively for deposits in its primary market areas, while continuing to manage the exposure to rising interest rates. The distribution and market share of deposits by type of deposit and by type of depositor are important considerations in the Company’s assessment of the stability of its fund sources and its access to additional funds. Furthermore, management shifts the mix and maturity of the deposits depending on economic conditions and loan and investment policies in an attempt, within established policies, to minimize cost and maximize net interest margin.

The Company’s noninterest-bearing, interest-bearing, savings and other time deposits are shown in the following table:


	March 31,		December 31,
	2010		2009		% Change
	(Dollars in millions)
Noninterest bearing demand	$	1,861	$	1,902		(2.2	)%
Interest bearing demand		4,589		4,324		6.1
Savings		768		725		5.9
Other time		3,776		3,727		1.3

Total deposits	$	10,994	$	10,678		3.0	%

Liquidity and Capital Resources

One of the Company’s goals is to provide adequate funds to meet increases in loan demand or any potential increase in the normal level of deposit withdrawals. The Company accomplishes this goal primarily by generating cash from the Bank’s operating activities and maintaining sufficient short-term liquid assets. These sources, coupled with a stable deposit base and a strong reputation in the capital markets, allow the Company to fund earning assets and maintain the availability of funds. Management believes that the Bank’s traditional sources of maturing loans and investment securities, sales of loans held for sale, cash from operating activities and a strong base of core deposits are adequate to meet the Company’s liquidity needs for normal operations over both the short-term and the long-term.

To provide additional liquidity, the Company utilizes short-term financing through the purchase of federal funds and securities sold under agreement to repurchase. Further, the Company maintains a borrowing relationship with the FHLB which provides access to short-term and long-term borrowings. In addition, the Company also has access to the Federal Reserve discount window and other bank lines. The Company had short-term advances from the FHLB and the Federal Reserve totaling $2.5 million and $203.5 million at March 31, 2010 and December 31, 2009, respectively. The Company had federal funds purchased and securities sold under agreement to repurchase of $480.8 and $539.9 million at March 31, 2010 and December 31, 2009, respectively. The Company had long-term advances totaling $112.8 million at March 31, 2010, which remained relatively unchanged from December 31, 2009. The Company has pledged eligible mortgage loans to secure the FHLB borrowings and had $3.1 billion in additional borrowing capacity under the existing FHLB borrowing agreement at March 31, 2010.

If the Company’s traditional sources of liquidity were constrained, the Company would find it necessary to evaluate other avenues of funding not typically used by the Company and the Company’s net interest margin could be impacted negatively. The Company utilizes, among other tools, maturity gap tables, interest rate shock scenarios and an active Asset/Liability Committee to analyze, manage and plan asset growth and to assist in managing the Company’s net interest margin and overall level of liquidity. The Company does not anticipate any short- or long-term changes to its liquidity strategies.

Off-Balance Sheet Arrangements

In the ordinary course of business, the Company enters into various off-balance sheet commitments and other arrangements to extend credit that are not reflected in the consolidated balance sheets of the Company. The business purpose of these off-balance sheet commitments is the routine extension of credit. While most of the commitments to extend credit are made at variable rates, included in these commitments are forward commitments to fund individual fixed-rate mortgage loans. Fixed-rate lending commitments expose the Company to risks associated with increases in interest rates. As a method to manage these risks, the Company enters into forward commitments to sell individual fixed-rate mortgage loans. The Company also faces the risk of deteriorating credit quality of borrowers to whom a commitment to extend credit has been made; however, no significant credit losses are expected from these commitments and arrangements.

Regulatory Requirements for Capital

The Company is required to comply with the risk-based capital guidelines established by the Board of Governors of the Federal Reserve System. These guidelines apply a variety of weighting factors that vary according to the level of risk associated with the assets. Capital is measured in two “Tiers”: Tier I consists of common shareholders’ equity and qualifying non-cumulative perpetual preferred stock, less goodwill and certain other intangible assets; and Tier II consists of general allowance for losses on loans and leases, “hybrid” debt capital instruments and all or a portion of other subordinated capital debt, depending upon remaining term to maturity. Total capital is the sum of Tier I and Tier II capital. The required minimum ratio levels to be considered adequately capitalized for the Company’s Tier I capital, total capital, as a percentage of total risk-adjusted assets, and Tier I leverage capital (Tier I capital divided by total assets, less goodwill) are 4%, 8% and 4%, respectively. The Company exceeded the required minimum levels for these ratios at March 31, 2010 and December 31, 2009 as follows:


	March 31, 2010					December 31, 2009
	Amount		Ratio			Amount		Ratio
			(Dollars in thousands)
BancorpSouth, Inc.
Tier I capital (to risk-weighted assets)	$	1,134,779		11.12	%	$	1,143,019		11.17	%
Total capital (to risk-weighted assets)		1,263,156		12.38			1,271,634		12.42
Tier I leverage capital (to average assets)		1,134,779		8.86			1,143,019		8.95

The Federal Deposit Insurance Corporation’s capital-based supervisory system for insured financial institutions categorizes the capital position for banks into five categories, ranging from “well capitalized” to “critically undercapitalized.” For a bank to be classified as “well capitalized,” the Tier I capital, total capital and leverage capital ratios must be at least 6%, 10% and 5%, respectively. The Bank met the criteria for the “well capitalized” category at March 31, 2010 and December 31, 2009 as follows:


	March 31, 2010					December 31, 2009
	Amount		Ratio			Amount		Ratio
			(Dollars in thousands)
BancorpSouth Bank
Tier I capital (to risk-weighted assets)	$	1,111,047		10.90	%	$	1,119,612		10.95	%
Total capital (to risk-weighted assets)		1,239,424		12.16			1,248,227		12.21
Tier I leverage capital (to average assets)		1,111,047		8.67			1,119,612		8.79

There are various legal and regulatory limits on the extent to which the Bank may pay dividends or otherwise supply funds to the Company. In addition, federal and state regulatory agencies have the authority to prevent a bank, bank holding company or financial holding company from paying a dividend or engaging in any other activity that, in the opinion of the agency, would constitute an unsafe or unsound practice. The Company does not expect these limitations to cause a material adverse effect with regard to its ability to meet its cash obligations.

Uses of Capital

The Company may pursue acquisitions of depository institutions and businesses closely related to banking that further the Company’s business strategies, including FDIC-assisted transactions. The Company anticipates that consideration for any transactions other than FDIC-assisted transactions would include shares of the Company’s common stock, cash or a combination thereof.

On March 21, 2007, the Company announced a new stock repurchase program whereby the Company may acquire up to three million shares of its common stock in the open market at prevailing market prices or in privately negotiated transactions during the period from May 1, 2007 through April 30, 2009. The original expiration date for this stock repurchase program has been extended until April 30, 2011. The extent and timing of any repurchases will depend on market conditions and other corporate considerations. Repurchased shares will be held as authorized but unissued shares. These authorized but unissued shares will be available for use in connection with the Company’s stock option plans, other compensation programs, other transactions or for other general corporate purposes as determined by the Company’s Board of Directors. At March 31, 2010, 460,700 shares had been repurchased under this program, but the Company has not repurchased any shares of its common stock since March

2008. The Company will continue to evaluate additional share repurchases under this repurchase program and will evaluate whether to adopt a new stock repurchase program before the current program expires. The Company conducts its stock repurchase program by using funds received in the ordinary course of business. The Company has not experienced, and does not expect to experience, a material adverse effect on its capital resources or liquidity in connection with its stock repurchase program.

Certain Litigation Contingencies

The Company and its subsidiaries are engaged in lines of business that are heavily regulated and involve a large volume of financial transactions with numerous customers through offices in nine states. Although the Company and its subsidiaries have developed policies and procedures to minimize the impact of legal non-compliance and other disputes, litigation presents an ongoing risk.

The Company and its subsidiaries are defendants in various lawsuits arising out of the normal course of business, including claims against entities to which the Company is a successor as a result of business combinations. In the opinion of management, the ultimate resolution of such matters should not have a material adverse effect on the Company’s consolidated financial position or results of operations. Litigation is, however, inherently uncertain, and the Company cannot make assurances that it will prevail in any of these actions, nor can it estimate with reasonable certainty the amount of damages that it might incur.

CRITICAL ACCOUNTING POLICIES

During the three months ended March 31, 2010, there was no significant change in the Company’s critical accounting policies and no significant change in the application of critical accounting policies as presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.


ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

During the three months ended March 31, 2010, there were no significant changes to the quantitative and qualitative disclosures about market risks presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.


ITEM 4.		CONTROLS AND PROCEDURES.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except for the remediation efforts management commenced in the first quarter of 2010 related to a material weakness in internal control over financial reporting identified as of December 31, 2009 and reported on in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. Following management’s determination of the material weakness, management promptly began taking the following remedial actions:

•

The creation of a real estate risk management group to oversee full compliance with laws, regulations and U.S. GAAP related to lending activities;

•

Testing of significant loans, with a focus on higher risk loans, for impairment on a quarterly basis;

•

Reporting by management to the Board of Directors on a quarterly basis regarding significant problem loans and potentially problematic portfolios; and

•

The commitment of additional resources to the Bank’s appraisal group, as necessary, for compliance with appraisal policies and procedures.

Management anticipates that these remedial actions will strengthen the Company’s internal control over financial reporting and will, over time, address the material weakness that was identified as of December 31, 2009. Because

some of these remedial actions will take place on a quarterly basis, their successful implementation may need to be evaluated over several quarters before management is able to conclude that the material weakness has been remediated. The Company cannot provide any assurance that these remediation efforts will be successful or that the Company’s internal control over financial reporting will be effective as a result of these efforts.

Evaluation of Disclosure Controls and Procedures

As of March 31, 2010, the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13(a)-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation and the identification of a material weakness in the Company’s internal control over financial reporting as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in its reports that it files or submits under the Exchange Act is recorded, processed, summarized and reporting within the time periods specified in the Securities Exchange Commission rules and forms.

PART II
OTHER INFORMATION


ITEM 1A.		RISK FACTORS.

There have been no material changes from the risk factors previously disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2009.


ITEM 6.		EXHIBITS.


(3)	(a)	Restated Articles of Incorporation, as amended. (1)

	(b)	Bylaws, as amended and restated. (2)

	(c)	Amendment No. 1 to Amended and Restated Bylaws. (3)

	(d)	Amendment No. 2 to Amended and Restated Bylaws. (4)

	(e)	Amendment No. 3 to Amended and Restated Bylaws. (4)

(4)	(a)	Specimen Common Stock Certificate. (5)

	(b)	Rights Agreement, dated as of April 24, 1991, including as Exhibit A the forms of Rights Certificate and of Election to Purchase and as Exhibit B the summary of Rights to Purchase Common Shares. (6)

	(c)	First Amendment to Rights Agreement, dated as of March 28, 2001. (7)

	(d)	Amended and Restated Certificate of Trust of BancorpSouth Capital Trust I. (8)

	(e)	Second Amended and Restated Trust Agreement of BancorpSouth Capital Trust I, dated as of January 28, 2002, between BancorpSouth, Inc., The Bank of New York, The Bank of New York (Delaware) and the Administrative Trustees named therein. (9)

	(f)	Junior Subordinated Indenture, dated as of January 28, 2002, between BancorpSouth, Inc. and The Bank of New York. (9)

	(g)	Guarantee Agreement, dated as of January 28, 2002, between BancorpSouth, Inc. and The Bank of New York. (9)

	(h)	Junior Subordinated Debt Security Specimen. (9)

	(i)	Trust Preferred Security Certificate for BancorpSouth Capital Trust I. (9)


	(j)	Certain instruments defining the rights of certain holders of long-term debt securities of the Registrant are omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The Registrant hereby agrees to furnish copies of these instruments to the SEC upon request.

(31.1)		Certification of the Chief Executive Officer of BancorpSouth, Inc. pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

(31.2)		Certification of the Chief Financial Officer of BancorpSouth, Inc. pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

(32.1)		Certification of the Chief Executive Officer of BancorpSouth, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

(32.2)		Certification of the Chief Financial Officer of BancorpSouth, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*


(1)		Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2009 (file number 1-12991) and incorporated by reference thereto.

(2)		Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998 (file number 1-12991) and incorporated by reference thereto.

(3)		Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (file number 1-12991) and incorporated by reference thereto.

(4)		Filed as exhibits 3.1 and 3.2 to the Company’s Current Report on Form 8-K filed on January 26, 2007 (File number 1-12991) and incorporated by reference thereto.

(5)		Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1994 (file number 0-10826) and incorporated by reference thereto.

(6)		Filed as exhibit 1 to the Company’s registration statement on Form 8-A filed on April 24, 1991 (file number 0-10826) and incorporated by reference thereto.

(7)		Filed as exhibit 2 to the Company’s amended registration statement on Form 8-A/A filed on March 28, 2001 (file number 1-12991) and incorporated by reference thereto.

(8)		Filed as exhibit 4.12 to the Company’s registration statement on Form S-3 filed on November 2, 2001 (Registration No. 33-72712) and incorporated by reference thereto.

(9)		Filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 28, 2002 (file number 1-12991) and incorporated by reference thereto.

*		Filed herewith.

INDEX TO EXHIBITS


Exhibit No.		Description

(3)	(a)	Restated Articles of Incorporation, as amended. (1)

	(b)	Bylaws, as amended and restated. (2)

	(c)	Amendment No. 1 to Amended and Restated Bylaws. (3)

	(d)	Amendment No. 2 to Amended and Restated Bylaws. (4)

	(e)	Amendment No. 3 to Amended and Restated Bylaws. (4)

(4)	(a)	Specimen Common Stock Certificate. (5)

	(b)	Rights Agreement, dated as of April 24, 1991, including as Exhibit A the forms of Rights Certificate and of Election to Purchase and as Exhibit B the summary of Rights to Purchase Common Shares. (6)

	(c)	First Amendment to Rights Agreement, dated as of March 28, 2001. (7)

	(d)	Amended and Restated Certificate of Trust of BancorpSouth Capital Trust I. (8)

	(e)	Second Amended and Restated Trust Agreement of BancorpSouth Capital Trust I, dated as of January 28, 2002, between BancorpSouth, Inc., The Bank of New York, The Bank of New York (Delaware) and the Administrative Trustees named therein. (9)

	(f)	Junior Subordinated Indenture, dated as of January 28, 2002, between BancorpSouth, Inc. and The Bank of New York. (9)

	(g)	Guarantee Agreement, dated as of January 28, 2002, between BancorpSouth, Inc. and The Bank of New York. (9)

	(h)	Junior Subordinated Debt Security Specimen. (9)

	(i)	Trust Preferred Security Certificate for BancorpSouth Capital Trust I. (9)

	(j)	Certain instruments defining the rights of certain holders of long-term debt securities of the Registrant are omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The Registrant hereby agrees to furnish copies of these instruments to the SEC upon request.

(31.1)		Certification of the Chief Executive Officer of BancorpSouth, Inc. pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

(31.2)		Certification of the Chief Financial Officer of BancorpSouth, Inc. pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

(32.1)		Certification of the Chief Executive Officer of BancorpSouth, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

(32.2)		Certification of the Chief Financial Officer of BancorpSouth, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*


(1)		Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2009 (file number 1-12991) and incorporated by reference thereto.

(2)		Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998 (file number 1-12991) and incorporated by reference thereto.

(3)		Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (file number 1-12991) and incorporated by reference thereto.

(4)		Filed as exhibits 3.1 and 3.2 to the Company’s Current Report on Form 8-K filed on January 26, 2007 (File number 1-12991) and incorporated by reference thereto.

(5)		Filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 1994 (file number 0-10826) and incorporated by reference thereto.

(6)		Filed as exhibit 1 to the Company’s registration statement on Form 8-A filed on April 24, 1991 (file number 0-10826) and incorporated by reference thereto.

(7)		Filed as exhibit 2 to the Company’s amended registration statement on Form 8-A/A filed on March 28, 2001 (file number 1-12991) and incorporated by reference thereto.


		BancorpSouth, Inc.

		(Registrant)

DATE: May 4, 2010		/s/ William L. Prater

		William L. Prater
		Treasurer and
		Chief Financial Officer

1.		I have reviewed this quarterly report on Form 10-Q of BancorpSouth, Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:



	/s/ Aubrey B. Patterson
	Aubrey B. Patterson
	Chairman of the Board and Chief Executive Officer



	/s/ William L. Prater
	William L. Prater
	Treasurer and Chief Financial Officer



May 4, 2010	/s/ Aubrey B. Patterson
	Aubrey B. Patterson
	Chairman of the Board and Chief Executive Officer